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Interest Rate Risk - Management

Interest rate risk is a phenomenon that is integral to the nature of banking. It is not always desirable to eliminate this risk, even if it is possible to do so, because banks would be denying themselves opportunities and hampering their ability to handle customer business profitably.

 

This course looks at the structures banks put in place to manage interest rate risk and the various approaches to such management – from ‘passive’ responses such as the imposition of limit systems to ‘active’ responses involving hedging rate risk via derivatives.

  • OBJECTIVES

    On completion of this course, you will be able to:

    Describe how most banks attempt to centralize the process of managing interest rate risk through a treasury function, which adopts both passive and active approaches to handling this risk

    Outline how derivative instruments are used to hedge interest rate risk

  • COURSE OUTLINE

    Topic 1: Overview of Managing Interest Rate Risk

    Treasury

    Asset Liability Committee (ALCO)

    Passive Responses – Limits

    ‘Active’ Responses – Hedging

    Topic 2: Hedging Interest Rate Risk

    Forwards vs. Options

    Concept of Forward Rates

    Forward Rate Agreements (FRAs)

    Interest Rate Futures

    Interest Rate Swaps

    o Basis Swaps

    Options

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    50 Minutes

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