Interest Rate Risk Management

The traditional method of managing interest rate risk has been fixed -rate borrowing in the form of loans . If is simple , & companies know how much they will need each year to service the debt, However, it is not always possible to obtain a loan at the rates, or for the amounts required.

An enterprise may wish to take precautions against interest rates moving up or down in the future , or many wish to change the existing structure of its funding or deposits , for instance for a fixed rate of interest to a floating rate. With the devolopmentof the financial markets & , in particular , the financial futures markets , a number of instruments have arisen which allow the treasurer to hedge interest rate risk.

Interest Rate Swaps.

An interest rate swap is an exchange of interest rate commitments , serch that a fixed -rate.

Commitment is exchanged for a floating-rate commitment. The parties to a swap retain their obligations to the orginal lenders . Which means that the swap parties must accept counter - party risk.Interest rate swaps are used for purposes other than obtaining a cheaper financing rate. They could , for example- be used to change future case flows or to enhance returns.Interest rate swaps are off balance sheet items , as the principal amount of the contract is not paid , & it is just an agreement to swap future cash flows. However, the existece of the swap should be maintained in the notes to the financial statements. The interest payments & receipts should be accrued over the life of the swap on a straight-line basis. Financial institutions which actively trade swaps revalue their positions the current market value.

Forward Rate Agreements.

A forward rate agreement ( FRA) is an agreement whereby an enterprise can lock in an interest rate today for a period of time starting in the future. On the future date the two counter parts in the FRA settleup & , depending on which way rates go , one will pay an amount of money to the other representing the difference between the FRA rate & the actual rate.

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Business Intelligence Resources on Better Management

Business Intelligence (BI) incorporates a wide range of information and data management techniques, beginning with data extraction, collection, cleansing, integration, aggregation, analysis and manipulation through the use of data marts, cubes, data warehouses and databases. The use of metadata and data modeling helps standardize data definitions and use across the enterprise. From these information sources, department and enterprise level reporting, monitoring, queries and analysis can be performed, and results presented as either ad hoc or standardized reports, dashboards, triggers and alerts.

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