Question: Suppose that your bank currently operates with a duration gap of 2.2 years. Which of the following will serve to reduce the banks interest rate

Suppose that your bank currently operates with a duration gap of 2.2 years. Which of the following will serve to reduce the banks interest rate risk?

i. Issue a one-year zero coupons CD to a customer and use the proceeds to buy a three-year zero coupons Treasury bond.

ii. Sell $5 million in one-year bullet (single payment) loans and buy three- month Treasury bills

iii. Obtain two-year funding from the Federal Home Loan Bank and lend the proceeds overnight in the Federal funds market.

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