10 Consider the following balance sheet for ABN AMRO Bank before answering parts (a) through (c). Assets ($ million) $ Liabilities ($ million) $ Cash Overnight interbank borrowing 150 (7.00%) T-notes 1 month (7.05%) 75 7 year fixed rate Subordinated debt 145 (8.55%) T-notes 3 months (7.25%) 50 T-notes two-year (7.50%) 45 Equity 10 T-notes 10-year (8.96%) 100 Corporate bonds 25 Total assets 305 Total liabilities and Equity 305 a) What is the repricing (funding) gap over the O-to-one-year maturity bucket? (Recall that cash is a non-interest earning asset) (3 marks) b) What is the incremental and cumulative repricing gap over the one-year to two-year maturity bucket? (3 marks) c) Calculate the impact on net interest income in dollars) if interest rates increase 20 basis points for the repricing gap in part (a) and cumulative repricing gap in part (b). (4 marks) d) What interest rate exposure a financial institution would have if (1) it has a negative repricing gap and (ii) it has a positive repricing gap? (4 marks) e) If the duration of assets is 3.8 years and the duration of liabilities is 3.2 years, what is the ABN AMRO's duration gap? (3 marks) f) What conclusions regarding ABN AMRO's interest rate risk exposure can you draw from the duration gap in your answer to part (e)? (3 marks) 10 Consider the following balance sheet for ABN AMRO Bank before answering parts (a) through (c). Assets ($ million) $ Liabilities ($ million) $ Cash Overnight interbank borrowing 150 (7.00%) T-notes 1 month (7.05%) 75 7 year fixed rate Subordinated debt 145 (8.55%) T-notes 3 months (7.25%) 50 T-notes two-year (7.50%) 45 Equity 10 T-notes 10-year (8.96%) 100 Corporate bonds 25 Total assets 305 Total liabilities and Equity 305 a) What is the repricing (funding) gap over the O-to-one-year maturity bucket? (Recall that cash is a non-interest earning asset) (3 marks) b) What is the incremental and cumulative repricing gap over the one-year to two-year maturity bucket? (3 marks) c) Calculate the impact on net interest income in dollars) if interest rates increase 20 basis points for the repricing gap in part (a) and cumulative repricing gap in part (b). (4 marks) d) What interest rate exposure a financial institution would have if (1) it has a negative repricing gap and (ii) it has a positive repricing gap? (4 marks) e) If the duration of assets is 3.8 years and the duration of liabilities is 3.2 years, what is the ABN AMRO's duration gap? (3 marks) f) What conclusions regarding ABN AMRO's interest rate risk exposure can you draw from the duration gap in your answer to part (e)