Commercial banking and Finance 作业.doc

Table of contents Table of contents 1 1. Main report 2 Impact on Net Interest Income (NII) 2 Impact on Net Interest Margin(NIM) 3 Impact on Net Worth of Bank (Equity) 3 2. Recommendation to the bank board 5 3. Analysis of the movement of interest rate in future 7 3.1 Inflation level 7 3.2 Monetary policy 7 3.3 Unemployment rate 8 3.4 The government bond yield 9 4. Reference 10 5. Bibliography: 11 6. Appendix 12 Appendix 1 Market value and duration 12 Appendix 2 Assets and Liabilities amounts, rates and durations 13 Appendix 3 Calculation related to appendix 2 14 1. Main report This report will briefly explain the impact of interest rate movements on the net worth of bank, Net Interest Income (NII), Net Interest Margin (NIM), and the way to manage such risk by hedging in the futures market. Balance Sheet: Assets MV($m) Rates D LE MV($m) Rates D Currency 300 Equity 2594.6860 Business loans 600 11% 3.95 2yr term dep 550 2% 1.65 Home loans 800 9% 5.5 3yr term dep 600 2.5% 2.80 5yr T-bond 954.0200 5% 4.4706 CD 2yr 194.2862 4.5% 1.9225 10yr T-bond 1473.4892 5% 8.016 CD 1yr 188.5370 4% 1 Total 4127.5092 4127.5092 Based on the information provided by the Accounts Department, our team has derived the missing data regarding the market value and duration of 5yr and 10yr T-bonds as well as the 2yr and 1 yr Core Deposits. The calculation is attached in the appendix of this report. Impact on Net Interest Income (NII) The account department has also established the 12 month period repricing gap (Rgap) with an amount of -$20m. The impact of increase in rates by 125bps (1.25%) is: Periodically (on a specific time-bucket), NII will fall by $250,000 as the bank holds more rate sensitive liabilities (RSL) than rate sensitive (RSA). However, the accounting department has also got the one year cumulative repricing gap (Cgap) with positive amount:$26m. The impact of increase in rates by 125bps (1.25%) is: It can be seen that NII rises by $325,000 for