Suppose that your bank buys a t-bill yielding 2 percent, Ask an Expert

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Suppose that your bank buys a T-bill yielding 2 percent that matures in six months and finances the purchase with a three-month time deposit paying 3 percent. The purchase price of the T-bill is $5 million financed with a $5 million deposit. a. Calculate the six-month GAP associated with this transaction. What does this GAP measure indicate about interest rate risk in this transaction? b. Calculate the three-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
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