What action must bank take to decrease interest-rate risk

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Suppose you are the manager of the bank that has $15 million of fixed-rate assets, $30 million of interest rate- sensitive assets, $20 million of interest rate insensitive liabilities and $20 million of interest rate -sensitive liabilities.

a. Is the bank rate sensitivity gap positive or negative? Explain why

b. What is the size of this bank rate gap?

c. If the short-term interest rates rise by 5 percent by what amount will the bank profit increase or decrease?

d. What action should the bank take to reduce the interest-rate risk? Explain

e. If the short-term interest rates fall by 5 percent, by what amount will the bank profit increase or decrease?

f. What action should the bank take to reduce the interest-rate risk? Explain

g. Explain how you can use the interest rate swaps to reduce the bank interest rate risk.

Reference no: EM13393825

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