1.
A given bank has the following interestâ€sensitive assets andliabilities on its balance sheet (in $ millions). If the interestrate rises by 1.5%, what is the change of profit?
Interest rate sensitive assets Interest rate sensitiveliabilities
Short term securities $150 Deposits $659
Loans $575
2 Based on the answer to the previous question, should the bankbe concerned about a decrease in interestrates?
No. Decrease is favorable to the bank because it has a negativeinterest rate gap.
Yes. Decrease is unfavorable to the bank because it has anegative financing gap.
No. Decrease is favorable to the bank because it has a positivefinancing gap.
Yes. Decrease is favorable to the bank because it has a positivefinancing gap.
3 If a bank wanted to hedge against a change in interest rates,what could it do?
It could be a counterparty in an interest rate swap.
It could purchase interest rate options.
It could open a interest rate futures position.
All of the above.
Only a and c above.
