Consider the following balance sheet for Whiz Financial Services Limited: Assets K Liabilities K Cash 6.25 Equity 25.00 Short term consumer loans (1 yr maturity)62.50 Demand deposits 50.00 Long term consumer loans (2 yr maturity)31.25 Client Savings accounts 37.50 3 month T-Bills 37.50 3 month CDs 50.00 6 month T-Bills 43.75 3 months Bankers Acceptances 25.00 3 year T-Bonds 75.00 6 month commercial paper 75.00 10 year, fixed rate mortgages 25.00 1 year time deposits 25.00 30- year floating rate mortgages 50 2-year time deposits 50.00 premises 6.25 Total 337.50 337.50 Required:
Consider the following
Assets K Liabilities K
Cash 6.25 Equity 25.00
Short term consumer loans (1 yr maturity)62.50 Demand deposits 50.00
Long term consumer loans (2 yr maturity)31.25 Client Savings accounts 37.50
3 month T-Bills 37.50 3 month CDs 50.00
6 month T-Bills 43.75 3 months Bankers Acceptances 25.00
3 year T-Bonds 75.00 6 month commercial paper 75.00
10 year, fixed rate mortgages 25.00 1 year time deposits 25.00
30- year floating rate mortgages 50 2-year time deposits 50.00
premises 6.25
Total 337.50 337.50
Required:
- Calculate the value of the rate sensitive assets, rate sensitive liabilities and the
repricing gap over the next year.
- Calculate the expected change in the net interest income for the bank if interest
rates rise by 1 percent on both rate sensitive assets and rate sensitive liabilities.
- If a bank manager was quite certain that interest rates were going to rise within the
next six months, how should the bank manager adjust the bank’s one-year repricing gap to take advantage of this anticipated rise? What if the mangerbelieved rates would fall in the next one year?
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