Calculate six-month gap associated with this transaction

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Reference no: EM131887113

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?

Reference no: EM131887113

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