The treasurer of a small bank has borrowed funds for 3 months at an interest rate of 6.73% and has lent funds for 6 months at 7.87%. The total amount is USD38 million.
To cover his exposure created by the mismatch of maturities, the dealer needs to borrow another USD38 million for months, in 3 months' time, and hedge the position now with a FRA.
The market has the following quotes from three dealers:
|
BANK A
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3 × 6
|
6.92-83
|
|
BANK B
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3 × 6
|
6.87-78
|
|
BANK C
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3 × 6
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6.89-80
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(a) What is (are) the exposure(s) of this treasurer? Represent the result on cash flow