Market Value (000s)
Duration (Years)
Liabilities and Market Duration
Equity Value (000s)
Rate (Years)
Time Deposits $2,275 3.00% 1.55 5.15
CDs $1,885 4.25% 3.50 3.74
MMDAs $1,350 3.15% 1.75 2.85
Equity $ (1,945) $3,565
Assets
Cash $1,000
Floating Loans $2,565
Bonds A
Bonds B
Total $3,565
Rate
5.0%
4.75%
5.25%
Bond A:
$1,000 bond at 4.75% coupon paid annually, current rates are 4.50%. Bond matures in 4 years. Bond has no options
Bond B:
$1,000 bond at 5.25% coupon paid annually, current rates are 5.50%. Bond matures in 3 years. Bond has no options. Estimated change in EVE assuming interest rate change: 1.00%
Objective:
The bank would like to hedge its balance sheet for 3-months Eurodollars futures with 3-month maturity from today: 98.25
What is the market value of futures to achieve a zero DGAP?
How many contracts will be required?
Should the bank take a long or short position in the futures market?
Assume the bank executes Eurodollar futures contracts for 3 months
Note: This is the same as the previous answer (row 35), be sure you manually type in a whole number otherwise it will create a large rounding error
After 3 months:
Current Eurodollar futures price: 96.65
What is the gain/loss after you close the futures position?
What is the net impact of the 3-month hedge?
