Business, 17.12.2019 22:31, Cnolteb5663

Tree row bank has assets of $150 million, liabilities of $135 million, and equity of $15 million. the asset duration is six years and the duration of the liabilities is four years. market interest rates are 10 percent. tree row bank wishes to hedge the balance sheet with eurodollar futures contracts, which currently have a price quote of $96 per $100 face value for the benchmark three-month eurodollar cd underlying the contract. the current rate on three-month eurodollar cds is 4.0 percent and the duration of these contracts is 0.25 year. a. should the bank go short or long on the futures contracts to establish the correct macrohedge? b. assuming no basis risk, how many contracts are necessary to fully hedge the bank? c. verify that the change in the futures position will offset the change in the cash balance sheet position for a change in market interest rates of plus 100 basis points and minus 50 basis points. saunders, anthony. financial institutions management: a risk management approach (p. 728). mcgraw-hill higher education. kindle edition.

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Tree row bank has assets of $150 million, liabilities of $135 million, and equity of $15 million. th...