The Average Duration of the Loans Is 10 Years If the Current (Spot) Rate for One-Year British Pound Futures

question 92

Multiple Choice

The average duration of the loans is 10 years.The average duration of the deposits is 3 years. $$\begin{array} { | l | r | l | r | } \hline \text { Consumer loans } & \$ 50 \text { million } & \text { Deposits } & \$ 235 \text { million } \\\hline \text { Commercial Loans } & \$ 200 \text { million } & \text { Equity } & \$ 15 \text { million } \\\hline \text { Total Assets } & \$ 250 \text { million } & \text { Total Liabilities \& Equity } & \$ 250 \text { million } \\\hline\end{array}$$ If the current (spot) rate for one-year British pound futures is currently at $1.58/? and each contract size is ?62,500, how many contracts are required to be purchased or sold in order to fully hedge against the pound exposure? (Assume no basis risk) .

• A)Sell 1,600 BP futures.
• B)Buy 1,600 BP futures.
• C)Sell 1,712 BP futures.
• D)Buy 2,560 BP futures.
• E)Buy 1,712 BP futures.

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