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Suppose that ABC bank and DEF bank have the following assets and liabilities: ABC bank Assets $200 million five-year floating-rate bonds (Libor + 7%) (Interest
Suppose that ABC bank and DEF bank have the following assets and liabilities: ABC bank Assets $200 million five-year floating-rate bonds (Libor + 7%) (Interest rate is adjusted annually) Liabilities $200 million five-year fixed-rate CDs (9%) DEF bank Assets $200 million five-year fixed-rate loans (16%) Liabilities $200 million five-year floating-rate CDs (Libor + 5%) (Interest rate is adjusted annually) Required: a. What is the risk exposure of ABC bank? (5 marks) b. What is the risk exposure of DEF bank? (5 marks) c. Using the repricing gap model, what is the impact over the next year on net interest income of ABC bank if interest rate rises by 200 basis points? (5 marks) d. Using the repricing gap model, what is the impact over the next year on net interest income of DEF bank if interest rate falls by 200 basis points
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