代写 Sydney BANK6002
代写 Sydney BANK6002
The University of Sydney
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:
Question 1 (10 marks)
(a) Calculate the Repricing Gap over the 12 month time period from 31
(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.
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
(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
(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
.代写 Sydney BANK6002
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
*You can assume that the interest rate swap has been dealt at current market
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
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
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
• 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