The following is an FI's balance sheet ($millions).

Notes to Balance Sheet.

Munis are 2-year 6 percent annual coupon municipal notes selling at par. Loans are floating rates, repriced quarterly. Spot discount yields for 91-day Treasury bills are 3.75 percent. CDs are 1-year pure discount certificates of deposit paying 4.75 percent.

-What is this bank's interest rate risk exposure,if any?
A)The bank is exposed to decreasing interest rates because it has a negative duration gap of -0.21 years.
B)The bank is exposed to increasing interest rates because it has a negative duration gap of -0.21 years.
C)The bank is exposed to increasing interest rates because it has a positive duration gap of +0.21 years.
D)The bank is exposed to decreasing interest rates because it has a positive duration gap of +0.21 years.

Question

The following is an FI's balance sheet ($millions).

Notes to Balance Sheet.
 
 Munis are 2-year 6 percent annual coupon municipal notes selling at par. Loans are floating rates, repriced quarterly. Spot discount yields for 91-day Treasury bills are 3.75 percent. CDs are 1-year pure discount certificates of deposit paying 4.75 percent.

-What is this bank's interest rate risk exposure,if any?
A)The bank is exposed to decreasing interest rates because it has a negative duration gap of -0.21 years. 
B)The bank is exposed to increasing interest rates because it has a negative duration gap of -0.21 years. 
C)The bank is exposed to increasing interest rates because it has a positive duration gap of +0.21 years. 
D)The bank is exposed to decreasing interest rates because it has a positive duration gap of +0.21 years.

Quizplus · Accepted Answer

Weighted Average Duration of Assets
11efb87f_5027_3a27_9137_8f3f8d290188_TB1314_00
Weighted Average Duration of Liabilities 11efb87f_5b86_c1b8_9137_1386ae45a036_TB1314_00
 Leverage-Adjusted Duration Gap 11efb87f_632a_2ba9_9137_a57bd7e983cb_TB1314_00

The Following Is an FI's Balance Sheet ($Millions)