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

question 35

Multiple Choice

The average duration of the loans is 10 years.The average duration of the deposits is 3 years. $\begin{array}{llr}\text { Consumer loans } & \$ 50 \text { million Deposits } & \$ 235 \text { million } \\\text { Commercial Loans } & \$ 200 \text { million Equity } & \$ 15 \text { million } \\\text { Total Assets } & \$ 250 \text { million Total Liabilities \& Equity } & \$ 250 \text { million }\end{array}$

If the current (spot) rate for one-year British pound futures is currently at $1.58/ $\le$ and each contract size is $\le$ 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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Definitions:

Rigid

Characterized by inflexibility or the inability to adapt to new situations, often leading to inefficiency or failure in changing environments.

Unwieldy

Difficult to handle, control, or manage due to size, complexity, or awkwardness.

Mechanistic Structures

Organizational structures characterized by rigid hierarchies, strict rules, and centralized decision-making, typical in stable environments.

Organic Structures

Flexible and adaptive organizational structures that are characterized by decentralized authority, low levels of formalization, and high levels of horizontal communication.