strategies for managing interest rate risk

... is interest rate risk?  Sources of interest rate risk 3 Impact of adverse movements in interest rates on organisations 4 Methods to measure interest rate risk Methods to manage interest rate ... interest rates to fall • Outright interest rate risk – the impact of a change in the overall level of interest rate risk For example, if an investor holds a fixed interest bond and interest rates ... discount rate (interest rate) on the value of financial instruments, hedges and the return on projects Sources of interest rate risk Interest rate risk can arise from a number of sources: • where interest...

Ngày tải lên: 15/03/2014, 02:20

Ngày tải lên: 15/02/2014, 05:20

... establish an effective process for managing interest rate risk The level of structure and formality in this process should be commensurate with the activities and level of risk approved by senior management ... significant new strategies, products and businesses are integrated into IRR management process Policies and procedures also should document and provide for controls over permissible hedging strategies ... of potential changes in market interest rates and a target or range for performance metrics Institutions with significant exposures to basis risk, yield curve risk or positions with explicit...

Ngày tải lên: 15/02/2014, 05:20

... sets the interest rates on the Bank’s automatic deposit and lending facilities, which normally form a corridor for the shortest moneymarket rates Interest rates on Norges Bank’s fixed -rate loans ... the deposit rate is banks’ marginal investment rate The deposit rate is thus Norges Bank’s key rate The overnight lending rate has limited monetary policy significance The interest rate on Norges ... As the article illustrates, many central banks use the interest rate on market operations or a market rate target as their key rate Norges Bank’s key rate is the deposit rate, which is a standing...

Ngày tải lên: 15/02/2014, 06:20

... to interest rate risk to derive the following statements about their exposure to this risk and their earnings from term transformation The systematic factor for the exposure to interest rate risk ... ratio of the bank’s interest rate exposure to the interest rate risk exposure of the bond portfolio, i.e ki (t) = BV Pi (t) BV PS (11) If the same exposure to interest rate risk translates into ... short-term interest rates In this paper, we investigate the banks’ exposure to interest rate risk as well as their earnings from term transformation using a dataset on German banks’ exposure to interest...

Ngày tải lên: 16/02/2014, 06:20

... exposure to interest rate risk First, it does not incorporate off-balance-sheet items, such as interest rate derivatives, which can be used to take on or hedge interest rate risk; for this reason, ... their 21 interest rate risk profile Banks may choose so for the purpose of hedging interest rate risk in their loan portfolios or in order to take specific positions on future interest rate movements ... estimated interest rate betas were, in general, positive for their sample of banks Because bond prices move inversely with interest rates, this implies that bank stock return and interest rates move...

Ngày tải lên: 17/02/2014, 03:20

... part of the management of interest rate risk at certain banks The notional amount of interest rate contracts—such as interest rate options, swaps, futures, and forward rate agreements—has grown ... of bank risk profiles CONCLUSION Interest rate risk does not currently appear to present a major risk to most commercial banks Nevertheless, for individual institutions, interest rate risk must ... present value effects when measuring interest rate risk TECHNIQUES FOR MEASURING INTEREST RATE RISK Historically, banks have focused on the effect that changing rates can have on their near-term...

Ngày tải lên: 06/03/2014, 02:21

... Structures for Managing Interest Rate Risk Evaluation of Interest Rate Exposures Supervisory Review of Interest Rate Risk Management Risk Identification Risk Measurement Risk Monitoring Risk Control ... manage interest rate risk Objective: To evaluate the effectiveness of the bank’s identification of its interest rate risk exposure Assess the bank’s strategies for managing interest rate risk and ... bank’s interest rate risk • Establish internal controls over the interest rate risk management process Risk Management Process Effective control of interest rate risk requires a comprehensive risk...

Ngày tải lên: 06/03/2014, 14:20

... interest rate risk In India, while RBI guidelines advise banks to use Forward Rate Agreements and Interest Rate Swaps to hedge interest rate risks, these markets are quite small Hence, this avenue for ... their interest rate exposure • Do speculators on the stock market impound information about the interest- rate exposure of a bank in forming stock prices? Can we corroborate measures of interest rate ... buy long dated assets, without bearing interest rate risk Interest rate risk measurement in banking can be done by simulating a scenario of higher interest rates, and putting together the losses...

Ngày tải lên: 06/03/2014, 14:20

... Accurate and timely identification and measurement of interest rate risk are necessary for the effective functioning of an interest rate risk management programme of a licensee Interest rate risk ... The Central Bank of the Bahamas Interest Rate Risk system of interest rate risk limits should set prudent boundaries for the level of interest rate risk exposure for the licensee Limits should ... reviewing strategies policies and limits for interest rate risk Sensitivity Analysis 8.6 Licensees should use interest rate scenarios to estimate the impact of changes in interest rates on the net interest...

Ngày tải lên: 15/03/2014, 01:20

... to managing interest rate risk, and (ii) assess the extent of interest rate risk being run by an ADI The principles set out the essential features of a sound framework for managing interest rate ... typically able to incorporate a wider range of interest rate risk sources and can therefore provide a better measure of interest rate risk exposure One such source of interest rate risk is ‘embedded ... of interest rate moves on earnings, a significant component of which is net interest income − the difference between interest receipts and payments Interest rate changes also affect interest- rate...

Ngày tải lên: 15/03/2014, 01:20

... in interest rates (Sinkey 2002) Interest rate swaps can thus reduce interest rate risk either by converting a fixed -rate income stream to a variable -rate stream or by converting a variable -rate ... taking risks It is therefore not only important for banks forecast interest rate risks but also to measure and manage it appropriately Traditional ways to measure and manage interest rate risk ... banks accept some degree of interest rate risk However for a bank to profit consistently from changes in interest rates requires the ability to forecast interest rates better than the rest of...

Ngày tải lên: 15/03/2014, 01:20

... Interest Rate Risk The potential impact of movements in interest rates on the institution Interest Rate Risk Position The amount of the institution’s exposure to interest rate risk Interest Rate ... assets Measurement of Interest Rate Risk Managing interest rate risk requires a clear understanding of the amount at risk and the impact of changes in interest rates on this risk position To make ... responsible for managing and controlling the institution’s exposure to interest rate risk in accordance with the interest rate risk management programme Although specific interest rate risk management...

Ngày tải lên: 15/03/2014, 02:20

... of fixed -rate commercial loans are consistent with recent evidence on “debt market timing.” Key words: fixed -rate loan, adjustable -rate loan, corporate risk management, interest rate risk Vickery: ... rising interest rates However, exposure to interest rate risk also likely varies a great deal across firms For example, in industries where output or cashflows covary positively with interest rates, ... contract design and bank risk management suggest that the share of interest rate risk in a loan borne by the borrower should depend in part on the lender’s interest rate risk profile (Arvan and...

Ngày tải lên: 15/03/2014, 10:20

... the interest rate Interest rate (7) For higher interest rate changes, the concept of convexity can be used This is based on the second derivative of the asset value function to the interest rate, ... banking system has limited exposure to interest rate risk in the banking book It can be concluded therefore, that interest rate risk does not seem significant for the Portuguese banking system This ... majority of interest rate risk sources can be pinpointed The simplest techniques to measure a bank’s interest rate risk exposure begin with a maturity/repricing schedule that distributes interest- sensitive...

Ngày tải lên: 22/03/2014, 17:20

... sampled for the same period The long-term interest rate chosen was the 10-year swap rate As a proxy for the risk- free rate (in order to calculate excess returns) the One-week Interbank rate was ... long-term interest rate? • Then, if indeed the sensitivity is significant, is there a negative relationship between stock returns and interest rate changes? • Is interest rate sensitivity uniform ... long-term interest rate follows Sweeny and Warga (1986) and Elyasiani and Mansun (1998) whom employ this measure as a proxy for innovations in the interest rate5 The change in the interest rate is...

Ngày tải lên: 22/03/2014, 17:20

... unreasonable behavior In a risk- neutral world, interest rate curves contain information concerning both current and expected prices of zero-coupon bonds Large oscillations in an interest rate curve can imply ... be computed from an interest rate curve In particular, if the principal and interest payment of a bond is c j dollars at time t j , for ≤ j ≤ K , then the pricing equation for the bond is K (2.3) ... coupon bond to be only approximated by (2.3) We are not interested in pricing a bond, given an interest rate curve, but in estimating an interest rate curve, given a set of bond prices We develop the...

Ngày tải lên: 22/03/2014, 17:20

... established for the bank’s interest- rate risk profile To determine if the bank’s interest- rate risk profile is within those limits To evaluate the management of the bank’s interest- rate risk, including ... transactions, including credit risk, concentration risk, interest- rate risk (including prepayment risk) , operational risk, liquidity risk, moral-recourse risk, and funding risk However, since the securitization ... net interest margin are consistent with the interestrate risk profile developed above EVALUATE THE INSTITUTION’S RISK- MEASUREMENT SYSTEMS AND INTEREST- RATE RISK EXPOSURE The institution’s risk- measurement...

Ngày tải lên: 29/03/2014, 13:20

... banks’ interest rate risk exposures in recent years For the typical bank holding company in the sample, increases in the use of interest rate derivatives corresponded to greater interest rate risk ... BHCs’ interest rate risk exposures in recent years For the typical bank holding company in the sample, increases in the use of interest rate derivatives corresponded to greater interest rate risk ... term designed to capture interest rate changes The coefficient on the interest rate term (the interest rate “beta”) can be interpreted as a measure of interest rate risk exposure Most of these...

Ngày tải lên: 29/03/2014, 13:20

... Flow Risk- free rate +15bps Risk- free rate minus variable negative spread34 Risk- free rate Risk- free rate minus variable negative spread35 Risk- free rate Risk- free rate +15bps Risk- free rate +15bps ... drops (rather than increases) in the interest rate, which is good news for integrated risk management, as low interest rates imply low credit risk Therefore, integrated economic capital could be lower ... converges to the risk- free interest rate Other liabilities pay the riskfree interest rate or in case of sub-ordinate debt, interbank and other liabilities the risk- free interest rate plus a fixed...

Ngày tải lên: 29/03/2014, 13:20