What strategies could management employ to hedge

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The portfolio managers of a firm determined that over the next year interest-sensitive assets are in the amount of $1.5 billion while interest-sensitive liabilities are in the amount of $1.8 billion. Moreover, when considering all of the firm's assets and liabilities, they determined that the average duration of assets is 3.6 years while the average duration of liabilities is 4.0 years. The firm's debt-to-equity ratio is 4-to-1. , what is the interest rate risk facing this institution for net income and market value? Consider and discuss each by thinking about what happens to net interest income and relative asset prices (market values) as interest rates rise or fall. What strategies could management employ to hedge against this risk by buying or selling futures, call options or put options (i.e., for each derivative is it a buy or sell strategy?)?

Reference no: EM13256707

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