Question 4 (4 points) An Insurance company has $200 million of floating rate liabilities that cost LIBOR 2 financing long term mortgages yielding 8 fxed rate A commercial bank has $200 million invested in securities yielding Libor 4 financed with long term liabilities of 200 million costing 9 fixed a What is the risk exposure of the commercial bank b What is the risk exposure of the insurance company c What would be the cash flow goal of each company if they entered into a SWAP agreement Give an example of a swap agreement between the two banks Make a chart to explain your answer Paragraph BIU Previous Page Next Page Page 3 of 3 Question 4 (4 points) An Insurance company has $200 million of floating rate liabilities that cost LIBOR 2 financing long term mortgages yielding 8 fxed rate A commercial bank has $200 million invested in securities yielding Libor 4 financed with long term liabilities of 200 million costing 9 fixed a What is the risk exposure of the commercial bank b What is the risk exposure of the insurance company c What would be the cash flow goal of each company if they entered into a SWAP agreement Give an example of a swap agreement between the two banks Make a chart to explain your answer Paragraph BIU Previous Page Next Page Page 3 of 3

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Question 4 (4 points) An Insurance company has $200 million of floating rate liabilities that cost LIBOR   2  financing long term mortgages yielding 8  fxed rate  A commercial bank has $200 million invested in securities yielding Libor 4  financed with long term liabilities of 200 million costing 9  fixed a  What is the risk exposure of the commercial bank  b  What is the risk exposure of the insurance company  c  What would be the cash flow goal of each company if they entered into a SWAP agreement  Give an example of a swap agreement between the two banks  Make a chart to explain your answer Paragraph BIU       Previous Page Next Page Page 3 of 3 Question 4 (4 points) An Insurance company has $200 million of floating rate liabilities that cost LIBOR   2  financing long term mortgages yielding 8  fxed rate  A commercial bank has $200 million invested in securities yielding Libor 4  financed with long term liabilities of 200 million costing 9  fixed a  What is the risk exposure of the commercial bank  b  What is the risk exposure of the insurance company  c  What would be the cash flow goal of each company if they entered into a SWAP agreement  Give an example of a swap agreement between the two banks  Make a chart to explain your answer Paragraph BIU       Previous Page Next Page Page 3 of 3

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Question 4 (4 points) An Insurance company has $200 million of floating rate liabilities that cost LIBOR + 2% financing long term mortgages yielding 8%

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