Suppose that you bank buys a t-bill yielding 4 that matures, Ask an Expert

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Suppose that you bank buys a T-bill yielding 4% that matures in 6-months and finances the purchase with a 3-month time deposit paying 3%. The purchase price of the T-bill is $3million financed with a $3 million deposit:

(a) Calculate the 6-month GAP associated with this transaction. What does this GAP measure indicated about interest rate risk in this transaction?

(b) Calculate the 3 month GAP associated with this transaction. Is this a better GAP measure of the bank’s risk? Why or why not?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92323501

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