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1. What is the Banc One's problem?
Hint:
• Do they use derivatives appropriately?
• Are they asset sensitive or liability sensitive?
• Is it OK?
• Do they manage risk appropriately?
• What is appropriate treatment?

2. How should Banc One manage its interest rate exposure and what role do derivatives play in its interest-rate risk management?
Hint:
• Are they asset sensitive or liability sensitive?
• Why do they take this position?

3. What are AIRS? Why is Banc One using them to manage its risk?
Hint:
• why did the AIRS offer such attractive yields?
• Consider the value of AIRS
• AIRS = (Callable fixed-rate bond) - (Callable floating rate bond)
• You could assume there is no counter party risk in this problem
• AIRS is portfolio of Plain Vanilla Swap and ???
• What is the implication?

4. How did Banc One control the other risks associated with its derivatives portfolio?

5. What should the executives of Banc One do? What did they do?

 

 

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M91764327

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