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. Answer the questions below about ALM. 1) The market value and duration of assets are 100 billion won and 5 years, respectively, and the market value and duration of liabilities are respectively What is the duration gap (DGAPK) of this bank when 80 billion is two years? 2) When the current market interest rate is 10% and the interest rate is expected to rise by 1 percentage point over the next year, this bank What will be the change in the net asset value of 3) What strategy can this bank take in the above situation? Done

User Shakiera
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1) The duration gap (DGAPK) of this bank when 80 billion is two years is 3 years.The duration gap (DGAPK) is the difference between the durations of assets and liabilities. Given,Market value and duration of assets= 100 billion won and 5 yearsMarket value of liabilities= 80 billion wonDuration of liabilities= 2 yearsDuration of assets - Duration of liabilities = DGAPKDAPK - DLiab = DGAPK5 - 2 = 3Therefore, the duration gap (DGAPK) of this bank when 80 billion is two years is 3 years.2) When the current market interest rate is 10% and the interest rate is expected to rise by 1 percentage point over the next year, the change in the net asset value of this bank can be calculated using the following formula:Change in net asset value = - DGAPK x change in interest rate x value of assetsGiven,Current interest rate (i) = 10%Expected interest rate (i1) = 10% + 1% = 11%Value of assets (V) = 100 billionWonTherefore, the Change in net asset value= - 3 x 1% x 100 billionWon= - 3 billionWonHence, the change in the net asset value of this bank would be - 3 billionWon.3) This bank can adopt various strategies to address the given situation, such as:Invest in short-term assets: The bank can invest its assets in short-term assets such as 2-3 year bonds that will mature when the liabilities come due. This will help to match the maturity of assets and liabilities.Reduce DGAPK: The bank can reduce the duration gap by changing the maturities of its assets and liabilities. It can increase the maturity of liabilities or decrease the maturity of assets. This will help to reduce the impact of interest rate changes on the net asset value.

User Chihwei
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