代写 Sydney BANK6002

Business School

The University of Sydney

BANK6002

Group Assignment Semester 1 2016

Due Date: The Assignment is to be submitted in two Parts:

Part 1 (50 marks) – is due no later than 4.00pm on 7 April 2016.

Part 2 (50 marks) – is due no later than 4.00pm on 6 Ma7 2016.

Total Marks for the Assignment: The assignment will be marked out of 100.

The marks for each Part and each Question are shown below.

Note: In answering each of the questions below you should show your

workings and complete your answer using an Excel Spreadsheet.

Assignments must be submitted electronically via Blackboard. Answers to

parts of the assignment (notably Part 2 Q3) will require a written response.

You can include a Word document as well as the Spreadsheet in your

submission, or alternatively the written material can be included as a

worksheet in your spreadsheet.

The Balance Sheet for Brumby Bank as at 31 December 2015 is shown in the

Excel Spreadsheet that can be downloaded from Blackboard. Brumby Bank is an

Authorised Depository Institution in Australia and operates both retail and investment

banking operations in Australia. Brumby Bank’s assets and liabilities are exclusively

domiciled in Australia and hence it does not have any foreign exchange risk. Using

this data and the additional information detailed below, you are required to:

PART 1

Question 1 (10 marks)

(a) Calculate the Repricing Gap over the 12 month time period from 31

December 2015.

(b) What is the impact on the bank’s earnings as a result of 0.5% increase

in interest rates using the results in (a) above?

(c) What are the advantages and disadvantages of the use of this model

to assess the bank’s risk? What alternative approaches could be used

to overcome some or all of the limitations that you have noted? Give

reasons identifying how the alternative approaches or enhancements

identified could be used to improve the measurement of risk.

2

Question 2 (15 marks)

(a) Calculate the Duration of the assets and liabilities subject to interest

rate risk and the Leverage Adjusted Duration Gap based on market

interest rates as at 31 December 2015.

(b) What is the change in the market value of assets and liabilities as a

result of a 0.5% increase in interest rates across the board using the

Duration model? Compare your answer with that in Q1 (b) and explain

any differences between the results.

(c) What are the key assumptions on which the assessment of interest

rate risk and the change in market values identified in your answers in

Q2(a) and Q2(b) above? To what extent do you consider that these

assumptions limit the usefulness of the results?

Question 3 (15 marks)

(a) Using Zero-Coupon equivalent interest rates to be calculated from

market interest rates on 31 December 2015 (refer also to the

additional information), calculate the PVBP for each of the “time

bucket” cashflows in the Cashflow ladder and the total PVBP, for all

interest rate sensitive assets and liabilities?

(b) What is the change in the market value of the portfolio as a result of a

0.5% increase in interest rates across the board using the PVBP

model?

(c) What is the bank’s overall position in the interest rate markets and it’s

exposure to changes in the shape of the interest rate yield curve?

Explain the advantages and disadvantages of the PVBP model

compared to the duration model used in Q2. Give reasons.

Question 4 (10 marks)

(a) In assessing the potential volatility in interest rates using Value at Risk

(VaR), you have been instructed to use one-year of historical data

covering the period from 1 January 2015 to 31 December 2015 (this

data is available from the RBA website) as the basis for your risk

assessment. Calculate the potential change in market interest rates for

a 1 day time horizon for maturities of 30, 90, and 180 days and 2, 5

and 10 years based on the data for the period above with a 95%

confidence level for each of the interest rate series.

(b) Using the PVBP calculated in Q3 above, calculate the impact in terms

of change in the value of the portfolio from changes in interest rates at

the 95% confidence level (VaR) in $ values over a one day period

(DEAR) using the results calculated in (a) above, assuming that

interest rate movements between each of the maturities in (a) above

are independent.

(c) What are the key assumptions that you have been required to make in

order to calculate the DEAR in Q4(b) above? How critical are these

assumptions in providing a robust estimation of the bank’s risk? Give

reasons.

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3

3

PART 2

Question 1 (15 marks)

In addition to the data extracted from the balance sheet, you also identify that

Brumby. Bank holds an interest rate swap with a face value of $50,000,000 and a

term to maturity of 3 years in which the bank pays fixed at 3.0%pa and receives

floating at the Bank Accepted Bill Rate (BBSW) on a semi-annual basis*.

What is the impact of this position on the cashflow ladder and the PVBP that you

have calculated in Part 1 Q3? Show this by way of changes to Australian Bank’s

cashflow ladder and the PVBP for each cashflow bucket as well as the overall

PVBP.

*You can assume that the interest rate swap has been dealt at current market

rates.

Question 2 (15 marks)

Management are interested to know the size of the position required to

macrohedge the portfolio’s risk using ASX 10 year Treasury Bond Futures

contracts traded on the Sydney Futures Exchange (SFE) which had a market

price of 96.75 on 31 December 2015 and have asked you to assess:

(a) What is the number and position (buy or sell) of ASX 10 year Treasury

Bond Futures required to “immunise” the Bank’s interest rate risk.

(b) To what extent do you consider that the hedging proposed in Q2(a) is

effective in managing the Bank’s interest rate risk? In answering this

question you should give reasons for your view and in particular

consider how effective the hedge has been in managing the risks.

Where appropriate you should show calculations and the amounts of

any remaining residual risks which you identify.

Question 3 (20 marks)

You have been asked to develop a strategy to manage the risks of changes in the

value of the portfolio as at 31 December 2015. Your assessment of potential

future interest rate changes has been based on your research of relevant

economic trends as well as market factors. You conclude that the potential

direction of interest rates is that the overnight or cash rates set by the RBA are

likely to remain steady, but this is not guaranteed (i.e. there is a small possibility of

interest rates rising). You conclude however that longer term interest rates are

likely to rise because the market is expected to conclude that interest rates at at

their low point in this interest rate and economic cycle.

You should formulate your strategy based on the bank’s positions calculated in

Part 2 Q1 above (i.e. after the effects of the Interest Rate Swap on the portfolio).

You are required to prepare a report of up to 1000 words setting out your

recommendations to Management for specific action, if any, that you recommend

be taken, which may include the use of transactions involving derivative

instruments and/or action to restructure the balance sheet. In answering this

question you should explain the relevant calculations that you have made to

identify the size and nature of the recommended action. You should give the

reasons why you chose the recommended strategy and, if applicable, any

assumptions that you have made (and why you made them) on which to base

your recommendations.

4

Additional Information

As noted above the Balance Sheet for Brumby Bank as at 31 December 2015 is

included in the attached Excel Spreadsheet. The following additional information is

also relevant:

1. You should also use, where relevant, the following “time buckets” 30, 90, 180

days and then six monthly buckets thereafter to 10 years in the cashflow ladder.

2. Interest Rates used for this case should be drawn from the "Statistics" under

“Interest Rates” in the Reserve Bank of Australia website www.rba.gov.au.

? Table F1 - Bank Accepted Bills - Interest Rates and Yields – Money

Market is relevant for Bank Accepted Bills covering interest rates for 30

days, 90 days and 180 days (all rates are quoted as interest in arrears

i.e. at maturity); and

• Table F2 - Capital Market Yields Government Bonds, covering interest

rates for 2 years, 5 years and 10 years (all rates are quoted on a “semi-

annual” basis). You will also need to interpolate interest rates for the

semi-annual periods involved. A spreadsheet is provided to help with this

process.

• Zero coupon interest rates should be calculated from the market interest

rates that you source above.

3. The market "margin" for various products for Brumby Bank is as follows:

(a) Housing Loans are offered at a margin of 3.5%pa. For variable rate

housing loans this is related to 30 day interest rates, for Fixed Term loans

the relevant Treasury Bond rate for the applicable term is the benchmark

rate. Variable housing loans are assessed to be able to be altered no more

frequently that every 30 days in response to interest rate changes and this

frequency relates directly to the interest rate risk on these loans. All fixed

rate housing loans are assumed to have a two (2) year term and are priced

by reference to the 2 year Treasury bond rate.

(b) Corporate Loans are all priced at a margin of 2.5%pa above the Bank

Accepted Bill rate or Treasury Bond rate for the applicable term.

(c) Brumby Bank can borrow for periods of up to 180 days at the money

market rates (bank accepted bills) with a zero margin.

(d) Brumby Bank can borrow at the bond rates with a margin above the

Treasury Bond rate of 0.5%pa.

4. The interest rates shown in the balance sheet are the average interest rates

applicable to each of the instrument types and each maturity band in the balance

sheet as at the date of the balance sheet. You should assume for the purposes of

calculations that these rates represent the cost or revenue (as the case may be)

for the purposes of calculating cashflows and returns.

代写 Sydney BANK6002

代写 Sydney BANK6002