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Consider the following balance sheet (in millions) for a Financial Institution:
Duration = 10 years $950
Duration = 2 years
1. What is the FI's duration gap?
2. What is the FI's interest rate risk exposure?
3. How can the FI use futures and forward contracts to put on a macrohedge?
4. What is the impact on the FI's equity value if the relative change in interest rates is an
increase of 1 percent?
5. Suppose that the FI macrohedges using Treasury bond futures that are currently priced at
96. What is the impact on the FI's futures position if the relative change in all interest
rates is an increase of 1 percent?
6. If the FI wants to macrohedge, how many Treasury bond futures contracts does it need?

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