The following are the assets and liabilities of a government security dealer. $$\begin{array} { | l | l | }
\hline \text { Assets: } & \text { \$150 million } 30 \text { day Treasury bills } \
\hline & \text { \$275 million } 91 \text { day Treasury bills } \
\hline & \text { \$90 million } 180 \text { day municipal notes } \
\hline & \$ 350 \text { million } 2 \text { year Treasury notes } \
\hline & \
\hline \text { Liabilities: } & \text { \$575 million } 14 \text { day repurchase agreements } \
\hline & \$ 290 \text { million } 1 \text { year commercial paper } \
\hline
\end{array}$$
-Use the repricing model to determine the funding gap for a maturity bucket of 365 days.
A)+$15 million.
B)-$20 million.
C)-$350 million.
D)-$450 million.
E)-$290 million.

Question

The following are the assets and liabilities of a government security dealer. $$\begin{array} { | l | l | } 
\hline \text { Assets: } & \text { \$150 million } 30 \text { day Treasury bills } \
\hline & \text { \$275 million } 91 \text { day Treasury bills } \
\hline & \text { \$90 million } 180 \text { day municipal notes } \
\hline & \$ 350 \text { million } 2 \text { year Treasury notes } \
\hline & \
\hline \text { Liabilities: } & \text { \$575 million } 14 \text { day repurchase agreements } \
\hline & \$ 290 \text { million } 1 \text { year commercial paper } \
\hline
\end{array}$$
-Use the repricing model to determine the funding gap for a maturity bucket of 365 days.
A)+$15 million.
B)-$20 million.
C)-$350 million.
D)-$450 million.
E)-$290 million.

Quizplus · Accepted Answer

The funding gap for a maturity bucket of 365 days can be calculated as follows:

Total rate-sensitive assets (RSA) = \$150M + \$275M + \$90M + \$350M = \$865M
Total rate-sensitive liabilities (RSL) = \$575M + \$290M = \$865M
Gap = RSA - RSL = \$865M - \$865M = -\$0M

This indicates that the dealer has no funding gap for a maturity bucket of 365 days. However, this assumes that there are no changes in interest rates during the 365-day period. If interest rates were to change, the dealer's RSA and RSL would be affected differently, resulting in a funding gap.

The Following Are the Assets and Liabilities of a Government