Question 1: Stan has sold a futures contract on Treasury bills that specified a price of 97.42. When the settlement date arrived, Stan closed out his position by purchasing a Treasury bills futures contract for 98.39. Ignoring transaction costs, determine Stan's profit or loss.

Question 2: Did Stan anticipate interest rates to increase or decrease when he sold his futures contract? What did he anticipate would happen to T-bill prices?

(B) Assume that American First Bank (AFB) has more rate-sensitive assets (in terms of dollars) than rate-sensitive liabilities.

Question 1: Would AFB be more likely to be adversely affected by an increase or a decrease in interest rates? Explain why.

Question 2: Should AFB purchase or sell interest rate futures contracts in order to hedge its exposure? Explain.

Question 3: Would a long hedge be more appropriate than a short hedge for AFB? Why or why not?