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Determine the duration of liabilities

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Point 1: BNP Paribus in Portugal 400 million euros worth of loans with 1-year duration and 400 million euros of loans with a 2-year duration. It has 300 million euros of bonds with a 2-year duration and 100 million euros worth of bonds with a 1-year duration. It has 100 million euros of cash and 200 million in fixed assets.

Point 2: The bank has 500 million in deposits with a 4-year duration and 300 million in checking-type deposits with a 0-year duration. It has issued 400 million of its own bonds (a liability) with a 16-year duration. (yes, I know this is unrealistic, but it to give you practice calculating duration gaps)

Point 3: There are no other assets or liabilities.

Question a. Draw or show the banks balance sheet and determine the value of bank equity

Question b. Determine the duration of assets

Question c. Determine the duration of liabilities

Question d. Calculate the duration gap.

Question e. Is it worried about falling or rising rates based on this duration gap?

Question f. How does it hedge? (what do you buy or sell?)

Reference no: EM132494163

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