Consider the following asset and liability structures:
County Bank
Asset: $10 million in a one-year, fixed-rate commercial loan $5 million in a 6 month Treasury bill
Liability: $10 million in a three-month CD $5 million in a 6 month CD
City Bank
Asset: $10 million in a three-year, fixed-rate commercial loan $ 5 million in a two year Treasury Note
Liability: $10 million in a six-month CD $5 million in a three month CD
a) Calculate each bank’s three-month, six-month, and one-year cumulative GAP.
b) Which bank has the greatest interest rate risk exposure as suggested by each GAP measure? Consider the risk position over the different intervals.