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 prince 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 rish in this transaction?
b. Calculate the three-month GAP associated with this transaction. Is this a bett GAP measure of the bank's risk? Why or why not?