The following are the assets and liabilities of a government security dealer. Use the repricing model to determine the funding gap for a maturity bucket of 30 days.

Question

The following are the assets and liabilities of a government security dealer.  Use the repricing model to determine the funding gap for a maturity bucket of 30 days.

Quizplus · Accepted Answer

To determine the funding gap using the repricing model, we need to subtract the amount of interest-sensitive assets from the amount of interest-sensitive liabilities for the given maturity bucket.

For the 30-day maturity bucket, the interest-sensitive assets are:
- Cash: $5 million
- Securities with a maturity of less than 1 year: $30 million
- Loans with a maturity of less than 1 year: $40 million
Total: $75 million

The interest-sensitive liabilities are:
- Deposits with a maturity of less than 1 year: $200 million
- Short-term borrowings: $300 million
Total: $500 million

Therefore, the funding gap for the 30-day maturity bucket is:
Interest-sensitive liabilities - Interest-sensitive assets = $500 million - $75 million = -$425 million

This means that the government security dealer has more interest-sensitive liabilities than assets for this maturity bucket, indicating a potential liquidity risk. Therefore, the best choice is A, -$425 million.

The Following Are the Assets and Liabilities of a Government