Bank hedge – exposure
TR Bank has:
Assets of $150 million with a duration of 6.
Liabilities of $135 million with a duration of 4.
Market interest rates are 10$.
TR Bank wishes to hedge its exposure with T bond futures.
The futures have a price of $95 per $100 face value with a market yield of 8.5295% and duration of 10.37 years. (Face value is $100000 per future.)
How should the bank hedge its exposure?
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