Question

Questions 27-29 refer to the following rate sensitivity report for Gotbucks Bank, Inc. ($million).

                       

Maturity                      Overnight                    1-30 days        31-91 days      92-181 days

Assets:

            Fed Funds       $20      

            Loans             $ 0                              $10                              $15                  $80

Liabilities:

            Fed Funds       $ 50

            Euro CDs        $   5                             $25                              $40                  $ 0

                                      

Calculate the funding gap for Gotbucks Bank using (a) a 91 day maturity period and (b) a

            181 day maturity period? (Note: Each maturity period is cumulative).

            a.         ‑$25;   +$80                

            b.         ‑$50; ‑$75

            c.         ‑$75;   +$5

            d.        +$55; ‑$40                

            e.         0; 0

How will an increase of 25 basis points in all IRs affect Gotbuck's net interest

            income over a planning period of 91 days?

            a.         ‑$0.1875 million                        

            b.         ‑$0.1250 million

            c.         +$0.1375 million                        

            d.         ‑$0.0625 million

            e.         0

What does Gotbucks Bank's 91 day gap positions reveal about the bank management's

            IR forecasts and the bank's IR risk exposure (ignoring the OBS positions)?

            a.         The bank is exposed to IR decreases and positioned to gain when IR decline.

            b.         The bank is exposed to IR increases and positioned to gain when IR decline.

            c.         The bank is exposed to IR increases and positioned to gain when IR increase.

            d.         The bank is exposed to IR decreases and positioned to gain when IR increase.

            e.         Insufficient information since OBSA position is unknown.

PLEASE SHOW ALL WORK

Answer 1

Ques 1)
C. -$75 and $5

RSA(91) = Fed Funds + overnight loan bucket + 30-day loan bucket + 91-day loan bucket
RSL(91) = Fed Funds + overnight Euro CD bucket + 30-day Euro CD bucket + 91-day Euro CD bucket
RSA(91) = (20 + 0 + 10 + 15) = $45
RSL(91) = (50 + 5 + 25 + 40) = $120
GAP(91) = 45 - 120 = -$75

Simialarly for 181 days maturity period we have

RSA(91) = (20 + 0 + 10 + 15+80) = $125
RSL(91) = (50 + 5 + 25 + 40+0) = $120
GAP(91) = 125 - 120 = $5

Ques 2)
A. -$0.1875 million
Change in NII over a 91-day planning period if rates inrease 25 basis points (+0.0025)
∆NII = (91-day GAP) × ∆R
∆NII = -$75,000,000 × (+0.0025) = -$187,500 or -$0.1875 million

Ques 3)
B. The bank is exposed to interest rate increases and positioned to gain when interest rates decline.
The bank has a negative 91-day GAP. Therefore, it is positioned to gain if rates decrease and liabilities can be rolled-over at lower cost