Question
Use this balance sheet information to answer the following questions: Balance Sheet (Amount in millions , Duration in years ) Assets Amount Duration Liabilities Amount
Use this balance sheet information to answer the following questions:
Balance Sheet (Amount in millions, Duration in years) | |||||
Assets | Amount | Duration | Liabilities | Amount | Duration |
Cash | 340 | ? | Core Deposits | 350 | 1.50 yrs |
Treasury Bills | 120 | 0.25 yrs | Euro CDs | 495 | 1.00 yrs |
Loans (hybrid) | 500 | 1.75 yrs | Debentures A | 300 | 3.00 yrs |
Loans (variable) | 310 | 0.50 yrs | Debentures B | 275 | 6.00 yrs |
Loans (fixed) | 275 | 4.50 yrs | Equity | ? |
|
The ALCO committee believes that = - 0.01 would be a reasonable estimate of relevant interest rate movements.
If the 90-day bank bill futures are quoted at 97.0 and there is no basis risk calculate the number of future contracts to macro-hedge the banks balance sheet.
Show all calculations and specifically state whether a short or long position is recommended.
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