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