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A bank has the following information. Its rate-sensitive assets equal 900 million. Its rate-sensitive liabilities equal 700 million. Assume a parallel shift in the yield

A bank has the following information.

Its rate-sensitive assets equal 900 million.

Its rate-sensitive liabilities equal 700 million.

Assume a parallel shift in the yield curve.

Present the relevant formulas and calculate:

  1. Assume that this bank has a negative duration GAP. Explain the implications of duration GAP in this case and provide some possible transactions/strategies (at least two) to reduce interest rate risk.

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