Answer:-
a. As per Given that,
Duration of assets(DOA) = 7 years
Total Assets = $1billion = $1000million
Total Liabilities = $900 million
Duration gap = 0years
Now, Weighted average of liabilities(WL)= Total LIabilities/Total Assets= 900/1000= 0.9
By using the formula,
Duration Gap = DOA - (DL*WL)
0= 7 - (DL*0.9)
DL*0.9=7
DL= 7/0.9 = 7.8
So. the dollar-weighted duration of the bank's liability is 7.8 years.
b. No, The zero duration gap doesn't mean that the bank had hedged the interest rate risk. In the given context it means that there is a perfect balance between total assets and total liabilities for a given maturity.
Get Answers For Free
Most questions answered within 1 hours.