Problem
Use this balance sheet information to answer the following questions:
|
Balance Sheet (Amount in millions, Duration in years)
|
|
Assets
|
Amount
|
Duration
|
Liabilities
|
Amount
|
Duration
|
|
Cash
|
30
|
|
Core Deposits
|
20
|
1.5 yrs
|
|
Loans (variable)
|
210
|
0.5 yrs
|
Euro CDs
|
130
|
1.0 yrs
|
|
Loans (fixed)
|
175
|
3.5 yrs
|
Debentures
|
|
5.0 yrs
|
|
|
|
|
Equity
|
50
|
|
The ALCO committee believes that = - 0.01 would be a reasonable estimate of relevant interest rate movements.
If the 90-day bank bill futures are quoted at 95.0, and there is no basis risk, calculate the number of futures contracts to macro-hedge the bank's balance sheet.
Show all calculations and specifically state whether a short or long position is recommended.