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问题如下：

The trading department of Dragon Fruit Bank now has a hedging position based on the duration. They shorted the $ 500 million U.S. Treasury bond and bought the $ 473 million U.S. TIPS. The analysis department of the bank has just made a regression analysis of the nominal interest rate and real interest rate, and found that when the nominal interest rate changes by 1 basis point, the real interest rate changes by 0.992 basis points. Based on this relationship, how should the trading department adjust their existing positions?

选项：

A.There is no need to change the position. B.Purchase $3.8 million TIPS. C.Purchase $4.8 million Treasury bond. D.Sell $3.8 million TIPS.

解释：

To determine the adjustment needed, first, we need to figure out the adjusted position based on the given relationship between nominal and real interest rate changes.

Change in nominal interest rate: 1 basis point

Change in real interest rate: 0.992 basis points

When the U.S. Treasury bond (which pays nominal interest rates) position changes by $1 million, the U.S. TIPS (which pays real interest rates) position should change by $0.992 million to hedge the position.

U.S. Treasury bond position: $500 million

U.S. TIPS position: $473 million

Desired TIPS position to hedge the $500 million U.S. Treasury bond based on the relationship = 0.992 * $500 million = $496 million.

Difference between current TIPS position and desired TIPS position = $496 million - $473 million = $23 million.

However, to adjust the position based on the nominal and real interest rate relationship, the bank should hold a TIPS position of $496 million for every $500 million in U.S. Treasury bonds.

Given that the bank currently holds $473 million in TIPS, they need to purchase an additional $23 million in TIPS to match the desired position.

However, the options don't have a "Purchase $23 million TIPS". Let's break it down:

For every $500 million U.S. Treasury bond, they need:

Desired TIPS = 0.992 * $500 million = $496 million

For every $1 million change in Treasury bonds:

Change in TIPS = 0.992 * $1 million = $0.992 million

Given the bank is short $500 million Treasury bonds and long $473 million TIPS, they are short:

$500 million - $473 million = $27 million adjusted equivalent

To adjust this, they need to make the TIPS position equivalent to:

$27 million / $0.992 = $27.22 million

Difference = $27.22 million - $27 million = $0.22 million or $220,000

Purchase $3.8 million TIPS seems too far from our computed value, but it's the closest among the choices.