Question 1 Suppose that XYZ Bank’s balance sheet is: Asset (million cedis) Liabilities (million cedis

[answerhappygod]

Question 1
Suppose that XYZ Bank’s balance sheet is:
Asset (million cedis)
Liabilities (million cedis)
Loans 200.

Deposit 160



Equity 40
Total 200

Total 200
Assume that the duration of the asset is 5 years and that of the
liability is 3 years. The bank expects interest rate to rise
by 1% from the current level of 10%.
a) Calculate the potential loss on the bank’s net worth.
b) Prepare the bank’s balance sheet after the rate change.
Question 2
Despite Savings Bank has a cumulative gap for the coming year of
+GHS 135 million,
and interest rates are expected to fall by two and a half
percentage points. Can you calculate the expected change in
net interest income that this thrift institution might
experience? What change will occur in net interest income if
interest rates rise by one and a quarter percentage
points?
Question 3
A bank holds a 10-year $2 million face value bond with a
duration of 8 years. The current price = $950,000. Interest
rates are expected to increase from 9% to 11%
over next 3 month.Demonstrate how the bank can use a forward
contract to hedge the interest rate risk.
Instruction: Answers of question 1 and it's sub questions should be
clearly separated from that of question 2 and questions 3