The Following Is an FI's Balance Sheet ($Millions)

question 1

Multiple Choice

The following is an FI's balance sheet ($millions) . Notes to Balance Sheet: Munis are 2-year 6 percent annual coupon municipal notes selling at par. Loans are floating rates, repriced quarterly. Spot discount yields for 91-day Treasury bills are 3.75 percent. GICs are 1-year pure discount certificates of deposit paying 4.75 percent.
What is this bank's interest rate risk exposure, if any?

• A)The bank is exposed to decreasing interest rates because it has a negative duration gap of -0.21 years.
• B)The bank is exposed to increasing interest rates because it has a negative duration gap of -0.21 years.
• C)The bank is exposed to increasing interest rates because it has a positive duration gap of +0.21 years.
• D)The bank is exposed to decreasing interest rates because it has a positive duration gap of +0.21 years.
• E)The bank is not exposed to interest rate changes since it is running a matched book.

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