Please answer the following questions correctly. Thank you 1. A bank with a nega
ID: 2598816 • Letter: P
Question
Please answer the following questions correctly. Thank you
1. A bank with a negative duration gap could mitigate it's risk by:
Select one:
a. Entering into a fixed-for-variable interest rate swap for term loans with greater than 1-year maturity.
b. Selling assets to convert to cash.
c. Seeking more cash deposits from customers.
d. a and b
e. a and c
f. b and c
g. a, b and c.
2. "Liquidity gap" is the difference between a financial institution's assets and liabilities, caused by assets and liabilities not sharing the same liquidity properties.
Select one:
True
False
3. Consider the following balance sheet positions for a financial institution:
$200 million
What is the impact on net interest income of a 1 percent increase in interest rates?
Select one:
a. -$1,000,000
b. Neutral.
c. $1,000,000
d. None of the above.
Rate-sensitive assets Rate-sensitive liabilities$200 million
$100 millionExplanation / Answer
Answer to Part 1
Option G
becasue swaps with more than 1 year maturity would not demand immidiate payments and cash is a rate sensitive asset, increasing cash portfolio will reduce gap
Answer to Part 2
True
Answer to Part 3
Gap is positive, hence increase in net interest rate will inrease net income.