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Scored Consider the following balance sheet ( in millions ) for an FI: eBook Duration = 1 0 years , $ 9 5 0 Duration
Scored Consider the following balance sheet in millions for an FI: eBook Duration years $ Duration years Equity Print References a What is the Fls duration gap? Do not round intermediate calculations. Round your answer to decimal places. eg b What is the Fls interest rate risk exposure? c How can the FI use futures and forward contracts to create a macrohedge? d What is the impact on the Fls equity value if the relative change in interest rates is an increase of percent? That isNegative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in dollars not in millions. e Suppose that the FI in part c macrohedges using Treasury bond futures that are currently priced at What is the change in value per futures contract used to hedge if the relative change in all interest rates is an increase of percent? That is Assume that the deliverable Treasury bond has a duration of nine years. The bonds underlying the futures contract have a par value of $Negative amount should be indicated by a minus sign. Enter your answer in dollars not in millions. f If the FI wants to macrohedge, how many Treasury bond futures contracts does it need? Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round down your answer to the nearest whole number. tableaDuration gap,yearsbThe FI would be hurt byincreasing,interest rates.cThe FI could hedge its interest rate risk byselling,futures or forward contracts.dImpact on the Fls equity value,$eChange in value per futures contract,$fNumber of Treasury bond, Explanation Some values below may show as rounded for display purposes, though unrounded numbers should be used for the actual calculations. a The duration gap is years. b The is exposed to interest rate increases. The market value of equity will decrease if interest rates increase. c The FI can hedge its interest rate risk by selling future or forward contracts. d $ e $ per futures contract. Since the macrohedge is a short hedge, this will be a profit of $ per contract. f To macrohedge, the Treasury bond futures position should yield a profit equal to the loss in equity value for any given increase in interest rates Thus, the number of futures contracts must be sufficient to offset the $ loss in equity value. This will necessitate the sale of $ contracts. Rounding down, to construct a macrohedge requires the to sell Treasury bond futures contract Why did we say Sell in part C
Scored
Consider the following balance sheet in millions for an FI:
eBook
Duration years $ Duration years Equity
Print
References
a What is the Fls duration gap? Do not round intermediate calculations. Round your answer to decimal places. eg
b What is the Fls interest rate risk exposure?
c How can the FI use futures and forward contracts to create a macrohedge?
d What is the impact on the Fls equity value if the relative change in interest rates is an increase of percent? That isNegative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in dollars not in millions.
e Suppose that the FI in part c macrohedges using Treasury bond futures that are currently priced at What is the change in value per futures contract used to hedge if the relative change in all interest rates is an increase of percent? That is Assume that the deliverable Treasury bond has a duration of nine years. The bonds underlying the futures contract have a par value of $Negative amount should be indicated by a minus sign. Enter your answer in dollars not in millions.
f If the FI wants to macrohedge, how many Treasury bond futures contracts does it need? Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round down your answer to the nearest whole number.
tableaDuration gap,yearsbThe FI would be hurt byincreasing,interest rates.cThe FI could hedge its interest rate risk byselling,futures or forward contracts.dImpact on the Fls equity value,$eChange in value per futures contract,$fNumber of Treasury bond,
Explanation
Some values below may show as rounded for display purposes, though unrounded numbers should be used for the actual calculations.
a
The duration gap is years.
b
The is exposed to interest rate increases. The market value of equity will decrease if interest rates increase.
c
The FI can hedge its interest rate risk by selling future or forward contracts.
d
$
e
$ per futures contract. Since the macrohedge is a short hedge, this will be a profit of $ per contract.
f
To macrohedge, the Treasury bond futures position should yield a profit equal to the loss in equity value for any given increase in interest rates Thus, the number of futures contracts must be sufficient to offset the $ loss in equity value. This will necessitate the sale of $ contracts. Rounding down, to construct a macrohedge requires the to sell Treasury bond futures contract
Why did we say Sell in part C
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