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 365 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 365 days.

Quizplus · Accepted Answer

Using the repricing model, we calculate the funding gap as follows:

Assets maturing in 365 days or less: 
- Cash: $10 million
- Gov't Securities: $120 million x 0.1 = $12 million
- Mortgages: $30 million x 0.25 = $7.5 million
Total Assets: $29.5 million

Liabilities maturing in 365 days or less: 
- Fed Funds Purchased: $40 million
- Customer Deposits: $120 million x 0.8 = $96 million
- Other Borrowings: $35 million
- Dealer Equity: $20 million
Total Liabilities: $191 million

Funding Gap = Total Assets - Total Liabilities = $29.5 million - $191 million = -$161.5 million

Therefore, the funding gap for a maturity bucket of 365 days is -$161.5 million, and the best answer choice is C) -$350 million, which is the closest option.

The Following Are the Assets and Liabilities of a Government