3.) what kind of features or options hedges would be called for the following si
ID: 2766967 • Letter: 3
Question
3.) what kind of features or options hedges would be called for the following situations? A.) market interest rates are expected to increase her financial firms asset liability managers expect to liquidate a portion of their bond portfolio to meet customers demands for funds in the upcoming quarter. B.) your financial firm has interest sensitive assets of 79 million and interest sensitive liabilities of 88 million over the next 30 days, and market interest rates are expected to rise. C.) A survey of Tusky banks corporate loan customers this month January indicates that on balance, this group of firms will need to draw 160 5 million from their credit lines and February and March, which is 65 million more than the banks management has forecasted and prepared for. The banks economist has predicted a significant increase in money market interest rates over the next 60 days. D.) Monarch national bank has interest sensitive assets greater than interest sensitive my abilities by 24 million. If interest rates fall as suggested by data from the federal reserve board, the banks net interest margin may be squeezed due to the decrease in loan and security revenue. E.) Caufield thrift association finds that it's assets have an average duration of 1.5 years and is liabilities have an average duration of 1.1 years. The ratio of liabilities to assets is .90. Interest rates are expected to increase by 50 basis points during the next six months. 3.) what kind of features or options hedges would be called for the following situations? A.) market interest rates are expected to increase her financial firms asset liability managers expect to liquidate a portion of their bond portfolio to meet customers demands for funds in the upcoming quarter. B.) your financial firm has interest sensitive assets of 79 million and interest sensitive liabilities of 88 million over the next 30 days, and market interest rates are expected to rise. C.) A survey of Tusky banks corporate loan customers this month January indicates that on balance, this group of firms will need to draw 160 5 million from their credit lines and February and March, which is 65 million more than the banks management has forecasted and prepared for. The banks economist has predicted a significant increase in money market interest rates over the next 60 days. D.) Monarch national bank has interest sensitive assets greater than interest sensitive my abilities by 24 million. If interest rates fall as suggested by data from the federal reserve board, the banks net interest margin may be squeezed due to the decrease in loan and security revenue. E.) Caufield thrift association finds that it's assets have an average duration of 1.5 years and is liabilities have an average duration of 1.1 years. The ratio of liabilities to assets is .90. Interest rates are expected to increase by 50 basis points during the next six months. 3.) what kind of features or options hedges would be called for the following situations? A.) market interest rates are expected to increase her financial firms asset liability managers expect to liquidate a portion of their bond portfolio to meet customers demands for funds in the upcoming quarter. B.) your financial firm has interest sensitive assets of 79 million and interest sensitive liabilities of 88 million over the next 30 days, and market interest rates are expected to rise. C.) A survey of Tusky banks corporate loan customers this month January indicates that on balance, this group of firms will need to draw 160 5 million from their credit lines and February and March, which is 65 million more than the banks management has forecasted and prepared for. The banks economist has predicted a significant increase in money market interest rates over the next 60 days. D.) Monarch national bank has interest sensitive assets greater than interest sensitive my abilities by 24 million. If interest rates fall as suggested by data from the federal reserve board, the banks net interest margin may be squeezed due to the decrease in loan and security revenue. E.) Caufield thrift association finds that it's assets have an average duration of 1.5 years and is liabilities have an average duration of 1.1 years. The ratio of liabilities to assets is .90. Interest rates are expected to increase by 50 basis points during the next six months.Explanation / Answer
A. The financial firm's Asset liability Managers can expect a lower price when they sell their bond portfolio. The price will increase only if the company uses short futures hedges wherein the contracts for government securities are first sold. These are then purchased at a profit as security prices fall provided there is an increase in interest rate as expected. A similar gain or profit could be made using the put options on Government Securities or on Financial Futures contract.
B. The interest-sensitive liabilities of the financial firms exceed its interest-sensitive assets by $11 million. This means that the bank will be open to losses if there is a rise in interest rates.The bank can now sell their financial futures or use a put option on Government securities or financial futures contracts which will approximately be equal to the dollar volumeof $11 million which indicates the interest-sensitive gap to hedge their risk.
C. The bank's net interest margin will come down if they forecast a higher interest rate. This implies that that the banks will follow at a higher interest cost. The bank should now consider a short sale of financial futures contracts or a put option which might approximately be equal in volume to the additional loan demand.
D. The interest sensitive liabitiesof Monarch National Bank has interest-sensitive assets is greater than interest-sensitive liabilities which is apprximately be equal to $24 million. When there is fall of the Interest rates, then the Net Interest Margin of the bank will squeezed due to the faster fall in interest income. Purchases of financial futures contracts followed by a subsequent sale or call options would probably help nn this scenario.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.