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Banque Langenberg holds $400 million of interest-sensitive assets and $325 million of interest-sensitive liabilities. Total assets...

Banque Langenberg holds $400 million of interest-sensitive assets and $325 million of interest-sensitive liabilities.
Total assets are $500 million.
Interest-sensitive assets (millions) $ 400
Interest-sensitive liabilities (millions) $ 325
Total assets $ 500
$ interest sensitive gap $75
Relative interest sensitive gap 15%
Interest sensitive ratio 1.23
What is the initial $ interest-sensitive gap?
What is the initial relative interest-sensitive gap?
Now change the assumptions. Boosting interest-sensitive assets to $600 million and interest-sensitive
liabilities to $400 million. Total assets are now $700 million.
What is the new $ interest-sensitive gap?
What is the new relative interest-sensitive gap?

Solutions

Expert Solution

What is the initial $ interest-sensitive gap?

The value of initial $ interest-sensitive gap is determined as below:

Initial $ Interest-Sensitive Gap = Interest-Sensitive Assets - Interest-Sensitive Liabilities

Here, Interest-Sensitive Assets = $400 million and Interest-Sensitive Liabilities = $325 million

Using these values in the above formula, we get,

Initial $ Interest-Sensitive Gap = 400 - 325 = $75 million

______

What is the initial relative interest-sensitive gap?

The value of initial relative interest-sensitive gap is arrived as follows:

Initial Relative Interest-Sensitive Gap = Initial $ Interest-Sensitive Gap/Total Assets = 75/500 = 15%  

______

What is the new $ interest-sensitive gap?

The value of new $ interest-sensitive gap is calculated as below:

New $ Interest-Sensitive Gap = New Interest-Sensitive Assets - New Interest-Sensitive Liabilities

Here, New Interest-Sensitive Assets = $600 million and New Interest-Sensitive Liabilities = $400 million

Using these values in the above formula, we get,

New $ Interest-Sensitive Gap = 600 - 400 = $200 million

______

What is the new relative interest-sensitive gap?

The value of new relative interest-sensitive gap is arrived as follows:

New Relative Interest-Sensitive Gap = New $ Interest-Sensitive Gap/New Total Assets = 200/700 = 28.57%

jeff jeffy answered 1 year ago
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