eco hwk 3 - Homework#3 Economics 350 Due Total Points Fall...

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Homework #3 Economics 350 Fall 2009 Xi Chen Name: Due: Monday, Nov.30 in class ID(000): Total Points: 66 Class: Question 1. (6 pts) Answer the following questions from Chapter 9 in your textbook. a).(3 pts.) Question 6. b). (3 pts.) Question 13. Question 2. (19 pts.) Consider a bank with a “positive gap”, namely a bank that has more variable-rate assets than variable-rate liabilities. a) (3 pts.) Suppose the bank is concerned about its interest rate risk. In the absence of a hedge, would the bank benefit or lose if future spot interest rates rose? What would happen if spot interest rates fell? b) (3 pts.) Suppose the bank enters into a forward contract to buy Treasury bonds at some future date. As future spot interest rates fell, would the bank’s profits from that contract rise or fall? c) (3 pts.) Suppose the bank enters into a forward contract to sell Treasury bonds at some future date. As future spot interest rates fell, would the bank’s profits from that contract rise or fall? d) (3 pts.) Explain how the bank could hedge against the risk described in part (a) with a financial futures contract. In particular, would the bank contract to buy or sell Treasury bonds?
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This note was uploaded on 12/12/2009 for the course ECO 350 taught by Professor Chen during the Fall '09 term at SUNY Albany.

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eco hwk 3 - Homework#3 Economics 350 Due Total Points Fall...

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