A commercial bank calculates that the duration of its liabilities (excluding net worth) averages one year while the duration of its assets averages 5 years. Assume that this bank has USD100mn of assets and USD25mn of capital. Also assume that assets and liabilities (excluding net worth) are interest rate sensitive and enter the balance sheet at market value (marked to market). If interest rates rose by 200bp what would be the impact on this banks leverage ratio? if the bank had wanted to neutralise (immunise) the balance sheet impact of any interest rate shifts through the futures market, what would be the best strategy?

A. Buy 1200 Treasury Bond futures contracts

B. Sell 1700 3mth Eurodollar futures contracts

C. Buy 850 3mth Eurodollar futures contracts

D. Sell 1250 6mth Euroyen futures contracts