Consider the following balance sheet (in millions) for an FI:

a. What is the FI€™s duration gap?
b. What is the FI€™s interest rate risk exposure?
c. How can the FI use futures and forward contracts to create a macrohedge?
d. What is the impact on the FI€™s equity value if the relative change in interest rates is an increase of 1 percent? That is, ˆ†R/(1 + R) = 0.01.
e. Suppose that the FI in part (c) macrohedges using Treasury bond futures that are currently priced at 96. What is the impact on the FI€™s futures position if the relative change in all interest rates is an increase of 1 percent? That is, ˆ†R/(1 + R) = 0.01. Assume that the deliverable Treasury bond has a duration of nine years.
f. If the FI wants to macrohedge, how many Treasury bond futures contracts does itneed?

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Assets Liabilities Duration 10 years $950 Duration 2 years $860 ul 90