(Solution) - Bank A has the following balance sheet information in millions Rate sensitive -(2025 Original AI-Free Solution)

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Bank A has the following balance sheet information (in millions):

Rate-sensitive assets are repriced quarterly at the 91-day Treasury bill rate plus 150 basis points. Fixed-rate assets have five years until maturity and are paying 9 percent annually. Rate-sensitive liabilities are repriced quarterly at the 91-day Treasury bill rate plus 100 basis points. Fixed-rate liabilities have two years until maturity and are paying 7 percent annually. Currently, the 91-day Treasury bill rate is 6.25 percent.
a. What is the bank's current net interest income? If Treasury bill rates increase 150 basis points, what will be the change in the bank's net interest income?
b. What is the bank's repricing or funding gap? Use the repricing model to calculate the change in the bank's net interest income if interest rates increase 150 basis points.
c. How can swaps be used as an interest rate hedge in this example?