A bank has Federal funds totaling $25 million with an interest rate sensitivity weight of 1.0....

A bank has Federal funds totaling $25 million with an interest rate sensitivity weight of 1.0. This bank also has loans of $105 million and investments of $65 million with interest rate sensitivity weights of 1.40 and 1.15 respectively. This bank also has $135 million in interest-bearing deposits with an interest rate sensitivity weight of .90 and other money market borrowings of $75 million with an interest rate sensitivity weight of 1.0. What is the weighted interest-sensitive gap for this bank?

Solutions

Expert Solution

Amount of fed funds = $25 million , Interest sensitivity weight of Fed funds = 1.0

Amount of loans = $105 million , Interest sensitivity weight of Fed funds = 1.40

Amount of investments = $65 million , Interest weight sensitivity of investments = 1.15

Weighted interest sensitive assets = Amount of fed funds x Interest sensitivity weight of Fed funds + Amount of loans x Interest sensitivity weight of loans + Amount of investments x Interest sensitivity weight of investments

= 25 x 1 + 105 x 1.40 + 65 x 1.15 = 25 + 147 + 74.75 = $246.75 million

Amount of interest bearing deposits = $135 million ,Interest sensitivity weight of interest bearing deposits = 0.90

Amount of market borrowings = $75 million , Interest sensitivity weight of market borrowings = 1

Weighted interest sensitive liabilities = Amount of interest bearing deposits x Interest sensitivity weight of interest bearing deposits + Amount of market borrowings x Interest sensitivity weight of market borrowings

= 135 x 0.90 + 75 x 1 = 121.50 + 75 = $196.5 million

Weighted interest sensitive gap = Weighted interest sensitive assets - Weighted interest sensitive liabilities = 246.75 - 196.5 =$50.25 million

Hence Weighted interest sensitive gap of bank = $50.25 million

jeff jeffy answered 10 months ago

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