Your employer has asked you to examine the interest-rate risk of your bank relat
ID: 2618865 • Letter: Y
Question
Your employer has asked you to examine the interest-rate risk of your bank relative to your direct competition. Management is concerned that interest rates will fall by the end of the year and wants to see what would happen to the relative profitability of the firm if the decline actually occurs.
Interest-rate risk depends on each bank's relative position of interest-sensitive assets and liabilities. You begin the analysis by collecting the information and estimates.
please show clear calcualtion process
Bank Balance Sheet Competition Your Firm Duration ears Duration Amount Amount Smillions rs Assets Reserves and cash items 4 0.0 0.0 0.6 1.6 5.0 0.3 1.2 4.0 Less than 1 year 1-2 years 9 Greater than 2 years Residential mortgages 0.4 5.5 0.9 4.4 Variable-rate 15 Fixed-rate (30 years) Commerical loans 0.6 1.4 5.4 0.0 30 0.9 1.8 6.0 0.0 13 31 Less than 1 year 1-2 years Greater than 2 years Physical capital 25 10 Liabilities Checkable deposits Money market deposit accounts Savings deposits CDs 14 9 16 1.0 0.5 1.0 1.0 0.6 10 12 6 0.4 0.3 1.1 2.9 0.0 0.6 0.5 1.8 2.2 0.0 Variable-rate Less than 1 year 14 10 10 14 19 1-2 years Greater than 2 years 15 10 12 39 Fed funds Borrowings Less than 1 year 1-2 years Greater than 2 years 0.4 1.2 2.9 18 12 31 0.7 1.8 3.8Explanation / Answer
Answer 1) a and b
Answer 2) a and B
Answer 3) A and B
Answer 4)
Gap = Rate sensitivity asset (RSA) - Rate sensitivity Liability (RSL)
Your Firm Competitors Amount(millions) Duration (yrs) Amount(millions) Duration (yrs) Assets Securities Less than 1 year 4 0.6 5 0.3 1-2 yrs 3 1.6 7 1.2 greater than 2yrs 7 5 9 4 Residential Mortgages Variable rate 9 0.4 21 0.9 Commercial Loans Less than 1 year 13 0.9 30 0.6 1-2 yrs 31 1.8 22 1.4 greater than 2yrs 55 6 30 5.4 Total interest sensitive Assets 122 124Related Questions
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