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Question 1-risk management (40 points) Bank Balance Sheet Your Firm Duration Amount (Smilions) Duration (years) (years) Assets Reserves and cash items 3 0.0 0.0 Securities Less than 1 year 4 0.6 0.3 1-2 years 3 1.6 1.2 Greater than 2 years 7 5.0 4.0 Residential mortgages Variable rate 9 0.4 21 0.9 15 5.5 17 4.4 Fixed-rate (30 years) Commerical loans 13 0.9 30 0.6 Less than 1 year 1-2 years 31 1.8 22 14 55 6.0 30 54 Greater than 2 years Physical capital 10 0.0 25 0.0 Liabilities Checkable deposits 10 1.0 14 10 5 06 9 05 Money market deposit accounts Savings deposits CDs 12 1.0 16 1.0 Variable-rate 6 0.4 12 0.6 Less than 1 year 19 0.3 14 0.5 1-2 years 8 1.1 10 1.8 Greater than 2 years 15 2.9 10 22 10 0.0 14 00 12 0.4 18 0.7 Less than 1 year 1-2 years 9 1.2 12 1.8 Greater than 2 years 39 2.9 31 3.8 You are in charge of examining the interest-rate risk of your bank relative to your direct competition. Interest-rate risk depends on each bank's relative position of interest-sensitive assets and liabilities. You begin the analysis by collecting the information and estimates. The table above contains all the relevant information. To prepare your presentation for the bank officers, you anticipate and answer the following questions (5 points each): Fed funds Borrowings Amount (Smillions) 679 Competition To prepare your presentation for the bank officers, you anticipate and answer the following questions (5 points each): 1. What are the totals for interest-rate-sensitive assets and liabilities for your firm and your competition. 2. Compute the net interest margin (NIM) for your firm for a 3% decline in interest rates. Do the same for a 3% increase in the interest rates. 3. Find the gap of your firm and your competition. 4. Using the Macaulay concept of duration, calculate the weighted duration of each asset and liability for both your firm and your competition. 5. What is the average duration for the assets and liabilities for your firm and your competition. 6. What is the duration gap for your firm and your competition. (assume that the portion of fixed-rate mortgages that will mature within 1 year is 20%, portion of checkable deposits (10%), portion of savings (20%)) Question 1-risk management (40 points) Bank Balance Sheet Your Firm Duration Amount (Smilions) Duration (years) (years) Assets Reserves and cash items 3 0.0 0.0 Securities Less than 1 year 4 0.6 0.3 1-2 years 3 1.6 1.2 Greater than 2 years 7 5.0 4.0 Residential mortgages Variable rate 9 0.4 21 0.9 15 5.5 17 4.4 Fixed-rate (30 years) Commerical loans 13 0.9 30 0.6 Less than 1 year 1-2 years 31 1.8 22 14 55 6.0 30 54 Greater than 2 years Physical capital 10 0.0 25 0.0 Liabilities Checkable deposits 10 1.0 14 10 5 06 9 05 Money market deposit accounts Savings deposits CDs 12 1.0 16 1.0 Variable-rate 6 0.4 12 0.6 Less than 1 year 19 0.3 14 0.5 1-2 years 8 1.1 10 1.8 Greater than 2 years 15 2.9 10 22 10 0.0 14 00 12 0.4 18 0.7 Less than 1 year 1-2 years 9 1.2 12 1.8 Greater than 2 years 39 2.9 31 3.8 You are in charge of examining the interest-rate risk of your bank relative to your direct competition. Interest-rate risk depends on each bank's relative position of interest-sensitive assets and liabilities. You begin the analysis by collecting the information and estimates. The table above contains all the relevant information. To prepare your presentation for the bank officers, you anticipate and answer the following questions (5 points each): Fed funds Borrowings Amount (Smillions) 679 Competition To prepare your presentation for the bank officers, you anticipate and answer the following questions (5 points each): 1. What are the totals for interest-rate-sensitive assets and liabilities for your firm and your competition. 2. Compute the net interest margin (NIM) for your firm for a 3% decline in interest rates. Do the same for a 3% increase in the interest rates. 3. Find the gap of your firm and your competition. 4. Using the Macaulay concept of duration, calculate the weighted duration of each asset and liability for both your firm and your competition. 5. What is the average duration for the assets and liabilities for your firm and your competition. 6. What is the duration gap for your firm and your competition. (assume that the portion of fixed-rate mortgages that will mature within 1 year is 20%, portion of checkable deposits (10%), portion of savings (20%))
