a)Big City Bank (BCB) has a positive repricing gap. Explain what this means in relation to its interest rate risk. Suggest and explain two different actions that BCB could take to reduce the gap. Suggest (and explain) a possible reason as to why BCB might decide not to reduce the repricing gap.

b)Explain how each of the following derivatives can hedge interest rate risk. In your answer, state the advantages and disadvantages of each.

-Interest rate futures

-FRA

-Interest rate swap

-Interest rate option

c)Given the current interest rate environment (rising interest rates), if you were the corporate treasurer in a large, newly listed company, outline some of the elements of the strategy both derivatives and non-derivatives that you would adopt to manage interest rate risk.