Suppose that your bank buys a T-bill yielding 4 percent that matures in six months and finances the purchase with a three-month time deposit paying 3 percent. The purchase prise of the t-bill is $3 million financed with a $3 million deposit.
A. Calculate the six-month GAP associated with this transaction. What does this GAP measure indicate about interest rate risk in this transaction?
B. Calculate the three-month GAP associated with this transaction. Is this a better GAP measure of the bank risk? Why or Why no?