1. Tree Row Bank has assets of $150 million, liabilities of $135 million, and equity of $15...
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1. Tree Row Bank has assets of $150 million, liabilities of $135 million, and equity of $15 million. The asset duration is six years, and the duration of the liabilities is four years. Market interest rates are 10 percent. Tree Row Bank wishes to hedge the balance sheet with Treasury bond futures contracts, which currently have a price quote of $95 per $100 face value for the benchmark 20-year, 8 percent coupon bond underlying the contract.
Should the bank go short or long on the futures contracts to establish the correct macrohedge?
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Related Book For
Financial Institutions Management A Risk Management Approach
ISBN: 9780077211332
6th Edition
Authors: Anthony Saunders, Marcia Cornett
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