Introduction
The aim of this report is to create an awareness of the interest rate which impacts the company. Moreover, the bank recommendations are evaluated whereby interest rate risk is exposed to the bank. There is a recommendation of a rate cut on loans by the bank board along with the growth of loan revenue and thus profit. We have also discussed the strategy to cover any decline in net worth using futures. Our bank, Make Life Easier (MLE) Bank involving the members with their respective ID which are Kok Yee Won (3889479), Lee Choi Yoong (3889459), Ng Mun Yi (3889480) and Sia Cui Lin (3889481).

Interest Rates
Bank profit is influenced by the changes in interest rates
When interest rate rises, bank portfolio managers can expect changes on both asset and liability sides of their balance sheets (Flannery 1980). Bank revenues and costs will adjust to reflect the new level of interest rates at different speeds, depending on each bank’s collection of assets and liabilities (Flannery 1980).

The asset side, an increase in interest rates may increase the amount of income a bank may earn on new assts it acquires (Flannery 1980). Assets were liquidated and mature over time with the proceeds of gradually being reinvested at the new higher interest rates (Flannery 1980). Many bank loans were carrying an interest rate that can change before the loan mature such as business loans (Flannery 1980).

Whereas in the liability side, the impact of the interest rate changes on bank costs depends on the average maturity and composition of the liability portfolio (Flannery 1980). The Regulation Q was limits the maximum rate payable on time and these rates have been below their competitive level for few years (Flannery 1980). When market rate rose, bankers will heat up their implicit interest competition for this regulated account (Flannery 1980).

Suppose that the