UBFB3013 Banking Operations and Treasury Management

UNIVERSITI TUNKU ABDUL RAHMAN

FACULTY OF BUSINESS AND FINANCE

ACADEMIC YEAR 2022/2023

BACHELOR OF BUSINESS ADMINISTRATION (HONS) BANKING AND FINANCE

BACHELOR OF ECONOMICS (HONS) FINANCIAL ECONOMICS

TUTORIAL 2: An Introduction to Treasury Management & the Management

of Balance Sheet Exposures

1. Descript the key decision areas of a Treasurer?

2. Follows are information obtained on the interest rate sensitivity of your bank:

Amount Rate
90 day interest rate sensitive asset $80,000 8.0%
90 day interest rate sensitive liabilities $120,000 6.0%

The consensus of forecasting is for interest rates to increase by 50 basis points during
the ninety days. But a significant minority of forecasters expects interest rate to fall by
50 basis points.

a) How could the bank eliminate its interest rate risk?

b) What could happen to net interest income if the minority forecast turned out to
be the correct one?

3. Assume that the ABC National Bank has the following structure of assets
and liabilities:

Assets RM Liabilities & Equity RM

Floating rate 250 Market deposit accounts 200
business loans
Federal funds sold 50 Federal funds purchased 200
Fixed rate loans and 700 Fixed rate liabilities 500
investments
Equity 100
Total assets 1000 Total liabilities & 1000
equity

Compute the dollar gap of the bank.

UBFB3013 Banking Operations and Treasury Management

4.
Assets RM Rate Duration Liabilities & RM Rate Duration
(%) (Years) Equity (%) (Years)
Cash 1000 Deposits 3000 6 0.5
Govt. 2000 4 5 Certificate of 9000 5 4
Securities Deposit
Loans 10000 8 4 Equity 1000
Total 13000 Total 13000
Assets Liability &
Equity

a) Based on the balance sheet above, calculate the duration gap of the bank.

b) Calculate the percentage and dollar change in the value of equity if all interest
rates increase by 100 basis points.

5. Indicate what will happen to the Economic Value Equity (EVE) under following
situations:

(a) Rising of interest rates when a bank have a negative duration gap
(b) Falling of interest rates when a bank have a positive duration gap
(c) Falling of interest rates when a bank have a zero duration gap

6. Differentiate Dollar Gap Analysis and Duration Gap Analysis.