Required: A. Calculate the value of the rate sensitive assets, rate sensitive liabilities and the repricing gap over the next year. B. Calculate the expected change in the net interest income for the bank if interest rates rise by 1 percent on both rate sensitive assets and rate sensitive liabilities. C. If a bank manager was quite certain that interest rates were going to rise within the next six months, how should the bank manager adjust the bank’s one-year repricing gap to take advantage of this anticipated rise? What if the manager believed rates would fall in the next one year?
Consider the following balance sheet for Whiz Financial Services Limited:
| Assets | K | Liabilities | K |
| Cash | 6.25 | Equity | 25.00 |
| Short term consumer loans (1 yr maturity) | 62.50 | Demand deposits | 50.00 |
| Long term consumer loans (2 yr maturity) | 31.25 | 31.25 Client Savings accounts | 37.50 |
| 3 month T-Bills | 37.50 | 3 month CDs | 50.00 |
| 6 month T-Bills | 43.75 | 3 months Bankers Acceptances | 25.00 |
| 3 year T-Bonds | 75.00 | 6 month commercial paper | 75.00 |
| 10 year, fixed rate mortgages | 25.00 | 1 year time deposits | 25.00 |
| 30- year floating rate mortgages | 50.00 | 2-year time deposits | 50.00 |
| premises | 6.25 | - | |
| Total | 337.50 | 337.50 |
Required:
A. Calculate the value of the rate sensitive assets, rate sensitive liabilities and the
repricing gap over the next year.
B. Calculate the expected change in the net interest income for the bank if interest
rates rise by 1 percent on both rate sensitive assets and rate sensitive liabilities.
C. If a bank manager was quite certain that interest rates were going to rise within the
next six months, how should the bank manager adjust the bank’s one-year
repricing gap to take advantage of this anticipated rise? What if the manager
believed rates would fall in the next one year?
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Solved in 3 steps
On the RSL, you have included the Demand deposits but they earn no interest at all...and since they can be withdrawn anytime....should they be part of the RSL?
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