1.A bank is considering issuing $5 million in time deposits for a term of 30 days.Currently interest rates are 1.50 percent on such deposits, however the bank expects rates on comparable deposits to rise to 1.68 percent when they issue the deposits.As a result, the bank plans to hedge its position by selling $5 million one month LIBOR futures contract currently at an index price of 90.Interest rates rise as expected and the bank offsets its position by buying futures contracts at 89.88.1.

(a)Calculate the change in the dollar interest cost of issuing the deposits if interest rates rise.

(b) Calculate the pre-tax gain or loss resulting from the futures position.

(c) Calculate the overall combined pre-tax gain or loss from the cost of issuing deposits and the futures contract.