
	Where results make sense

Topic: Interest rate risk

Related Topics

Credit risk

Volatility risk

Risk

Finance

	Interest Rate Risk
		The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between two rates, in the shape of the yield curve or in any other interest rate relationship.
		Interest rate risk affects the value of bonds more directly than stocks, and it is a major risk to all bondholders.
		The rationale is that as interest rates increase, the opportunity cost of holding a bond decreases since investors are able to realize greater yields by switching to other investments that reflect the higher interest rate.
	www.investopedia.com /terms/i/interestraterisk.asp (372 words)

	Interest Rate Risk
		Interest rate risk is risk to the earnings or market value of a portfolio due to uncertain future interest rates.
		Options risk, as a component of interest rate risk, is risk due to fixed income options—options that have fixed income instruments or interest rates as underliers.
		That is a risk distinct from interest rate risk.
	www.riskglossary.com /articles/interest_rate_risk.htm (2023 words)

	Internet Rate Risk Management (Site not responding. Last check: 2007-10-12)
		An interest rate swap is a contractual arrangement between two counterparties who agree to exchange interest payments on a defined principal amount for a fixed period of time.
		In an interest rate swap, the principal amount is never exchanged and therefore it is referred to as a “notional” principal amount or simply “notional.” Interest rate swaps do not generate new funding; rather, they convert one interest rate basis to another rate basis (e.g.
		Interest rate swaps can be used to “lock-in” a fixed rate of interest on a loan that is committed sometime in the future.
	www.oldnational.com /03_commercial/interestrateriskmgt.asp (967 words)

	eBanka - Interest rate risk management
		You will prevent losses caused by changes to the interest rate by Securing the interest rate risk.
		The reference rate for FRA trading is usually the PRIBOR or LIBOR reference rate, but other reference rates can be agreed on as well.
		An IRS contract (interest rate swap) represents an agreement between the contracting parties on swapping interest rates in the same currency throughout the agreed term, when one party usually performs payments of interest on fixed basis and the other on variable basis.
	www.ebanka.com /Corporate-finance/Client-dealing/Interest-rate-risk-management.html (231 words)

	Interest rate risk (Site not responding. Last check: 2007-10-12)
		Interest rate risk reflects the degree of vulnerability in a financial situation of a lending organization to adverse changes in interest rates.
		For example, a bank refinancing a long-term fixed interest rate credit with a short-term deposit, may face in the future, in the case of an interest rates increase, both a reduction of earnings in the position established, and a decrease in its intrinsic value.
		Fluctuations in revenue size are an important item for interest rate risk analysis, because a decrease in revenue or direct loss may create threats to financial stability of a bank as a result of undermining its capital sufficiency ratios and erosion of its reputation in the market.
	www.finflowholdings.com /ffh/interest_rate_risk.shtml (1264 words)

	UBS - Interest rate risk
		Net interest income at risk, which is defined as the potential change in net interest income resulting from adverse movements in interest rates over the next twelve months.
		Interest rate sensitivity is a simple unit measure of sensitivity, which does not, in itself, provide an indication of potential loss.
		The net interest income at risk figure shown is the worst case among various interest rate scenarios that have been analyzed, and results from an assumed downward interest rate shock (parallel shift) of 200 basis points.
	www.ubs.com /1/e/investors/financial_management/risks/marketrisk/interestraterisk.html (1162 words)

	FDIC: FDIC Law, Regulations, Related Acts - Statements of Policy
		The adequacy and effectiveness of a bank's interest rate risk management process and the level of its interest rate exposure are critical factors in the agencies' evaluation of the bank's capital adequacy.
		Interest rate risk is the exposure of a bank's financial condition to adverse movements in interest rates.
		Since the value of instruments with intermediate and long maturities or embedded options is especially sensitive to interest rate changes, banks with significant holdings of these instruments should be able to assess the potential longer-term impact of changes in interest rates on the value of these positions and the future performance of the bank.
	www.fdic.gov /regulations/laws/rules/5000-4200.html (2860 words)

	Rabobank Australia \| Interest Rate Risk Management
		Fixed interest rate loan option for farmers for terms ranging from 90 days to five years - enabling at least one major farm cost to be accurately budgeted for up to five years.
		Fixed interest rates can be booked up to 180 days prior to the draw down of the loan.
		Managing interest rate risk is about paying a rate of interest that is affordable for your business, and will remain affordable throughout the course of your loan.
	www.rabobank.com.au /rural/risk_management_services/interest_rate_risk_mgt/index.asp (144 words)

	Freddie Mac Press Release Voluntary Commitments - Monthly Interest-Rate Risk Disclosure
		Freddie Mac maintains a disciplined approach to measuring and managing interest-rate risk, with the goal of producing long-term returns that are relatively insensitive to changes in interest rates.
		Beginning with Freddie Mac's interest-rate risk management results for March 2001, the risk measure for parallel shifts in the Treasury yield curve, identified as "PMVS" in our prior disclosures, will be referred to as "PMVS-L" (since it reflects the effect of a change in the level of interest rates).
		Interest rates increased slightly in March, with the 10-year Treasury rate up 2 basis points to 4.92% at March 31, 2001.
	www.freddiemac.com /news/archives2001/interest_risk.htm (1093 words)

	Interest rate Risk- Models
		The modelling of the term structure of interest rates has produced a variety of approaches since the advent of arbitrage-free pricing theory and it continues to occupy the efforts of both academics and practitioners.
		Nevertheless, the goal of interest rate modelling is to provide a framework under which a large class of interest rate sensitive securities can be priced in a consistent manner.
		For forward rate models, the critical factor in determining the behaviour of a model is the form of the (HJM) volatility function.
	www.financewise.com /public/edit/riskm/interestrate/interestraterisk00-models.htm (3034 words)

	Interest Rate Risk -- A complete definition
		Interest rate risk is the chance that an unexpected change in interest rates will negatively affect the value of an investment.
		It is interesting to note that bond investors who intend to hold their bonds to maturity are less exposed to interest rate risk for two reasons.
		Interest rate risk accounts for approximately 90% of the risk involved with fixed income investing, according to research by BARRA International.
	www.streetauthority.com /terms/i/interest-rate-risk.asp (504 words)

	Interest Rate Risk Monitor
		In considering the mismatch between rate sensitive assets and liabilities it is important to keep in mind that the gap is a crude indicator of the possible direction in which net income might change.
		The power of net interest change comes through the analysis of several different rate scenarios at one time as well as the ability to adjust prepayment speeds of cash flows and monitor reinvestment assumptions for different interest rate scenarios.
		Net interest change as a percentage of net interest income displays the amount of net interest income that is exposed to interest rate risk.
	www.gobaker.com /al101/default.aspx (3981 words)

	FRB:Testimony, Greenspan--Government-sponsored enterprises--February 24, 2004
		Although the risk that a home mortgage borrower may default is small for any individual mortgage, risks can be substantial for a financial institution holding a large volume of mortgages for homes concentrated in one area or a few areas of the country.
		Interest rate risk associated with fixed-rate mortgages, unless supported by substantial capital, however, can be of even greater concern than the credit risk.
		Interest rate volatility combined with the ability of homeowners to prepay their mortgages without penalty means that the cash flows associated with the holding of mortgage debt directly or through mortgage-backed securities are highly uncertain, even if the probability of default is low.
	www.federalreserve.gov /boarddocs/testimony/2004/20040224/default.htm (3376 words)

	I. Sources and effects of interest rate risk
		Changes in interest rates also affect the underlying value of the bank's assets, liabilities and off-balance sheet instruments because the present value of future cash flows (and in some cases, the cash flows themselves) change when interest rates change.
		Since the economic value perspective considers the potential impact of interest rate changes on the present value of all future cash flows, it provides a more comprehensive view of the potential long-term effects of changes in interest rates than is offered by the earnings perspective.
		When evaluating the level of interest rate risk it is willing and able to assume, a bank should also consider the impact that past interest rates may have on future performance.
	riskinstitute.ch /138860.htm (1555 words)

	The Trinidad Guardian -Online Edition Ver 2.0
		This type of risk is the major risk faced by bondholders, and it is called "interest rate risk." The market was paying a lower interest rate on other types of securities, than was promised to the bondholder, and the bondholder exercised his option to "call in" the bond.
		Inflation risk is the risk that the money you invest will not have the purchasing power in the future as it has today.
		Inflation risk is usually related to interest rate risk, and interest rates generally rise as inflation increases.
	www.guardian.co.tt /archives/2004-12-26/business1.html (616 words)

	FT Mandate: Dampening interest rate risk
		Falling rates coupled with crippling equity market returns have served to reduce funding levels, on average, by 30 per cent.
		Interest rate risk has negative expected value for a pension scheme and it therefore seems intuitive to seek methods by which this risk can be controlled.
		The downside to removing such risks is that the scheme will not benefit from favourable changes in interest rates or inflation rates.
	www.ftmandate.com /news/fullstory.php/aid/473/Dampening_interest_rate_risk.html (813 words)

	Interest Rate Risk Monitor
		FHLMC servicers advance only the interest payments for the underlying loans that are in default in a mortgage pool and guarantee the repayment of principal within one year of the date of default.
		Scheduled principal and interest payments from the underlying mortgage loans and any principal prepayments of individual mortgage loans within the pool are passed through to mortgage pass-through security investors at scheduled payment dates.
		The performance of residuals indifferent interest rate environments is a function of the structure of the entire issue and must be analyzed on a case by case basis.
	www.jamesbaker.com /investments101/default.aspx (5351 words)

	Interest Rate Risk Management
		What we see is that if interest rates drop and stay there, there is an immediate appreciation in the value of the portfolio, but the portfolio then grows at a slower rate; on the other hand, if interest rates rise and stay there, there is a capital loss, but the portfolio then appreciates more rapidly.
		However, there are two further issues: one, interest rates are the main source of risk for bonds; two, obtaining return data on bonds to measure a market beta is difficult because a) bonds are often not traded; and b) the maturity of a bond changes with time, and hence its identity.
		Duration as a measure of interest rate risk assumes that the yield curve moves in parallel.
	webpage.pace.edu /pviswanath/notes/investments/fixportf.html (4415 words)

	How to Gauge Your Portfolio's Interest Rate Risk
		Interest rates are currently at historic lows, but experts tell us that rates are likely to increase once the economy is clearly on the mend.
		The industries most affected by increasing interest rates are those that sell big-ticket items requiring consumers to borrow to purchase their products.
		Obviously, the lower the ratio, the less the susceptible a firm is to rising interest rates.
	www.winninginvesting.com /interest_rate_risk.htm (728 words)

	Taking on rate risk can shorten mortgage length
		Being willing to take on some interest rate risk can shorten the life of your loan and potentially reduce the amount of interest paid over the life of the loan.
		While you are taking on the interest rate risk, the large additional principal payments diminish the amount of money at risk as time passes.
		I did run a what-if scenario that had the interest rate on your interest-only mortgage go up by 1 percent each year and the loan was still paid off in 78 months with a total interest expense of $12,625.85.
	www.bankrate.com /brm/news/DrDon/20031014a1.asp?prodtype=mtg (467 words)

	The Border Mail - Split interest rate risk
		RISING interest rates may be welcome news for those with savings, but it’s bad news for homeowners who have to find more each month to meet their home loan repayments.
		By spring of that year the official cash rate had risen to 6.25 per cent and I’m sure plenty of people would have given serious consideration to fixing their mortgage interest rate in anticipation of further rises.
		Official interest rate changes are made in response to pressures applied by a wide range of local and international economic and political factors, which could range from a boom in Australia to a crash on Wall Street, to a war in the Middle East.
	www.bordermail.com.au /news/bm/business/393291.html (525 words)

	Nationalbanken // Government Debt // Web document // Interest-Rate Risk (Site not responding. Last check: 2007-10-12)
		Interest-rate risk on the central-government debt is the risk of higher interest costs as a consequence of an upward shift in interest rates.
		By dispersing the central government's interest-rate exposure over time, it is avoided that a new interest rate is fixed on a relatively large proportion of the portfolio in a given year.
		The expected future interest costs are calculated, as well as the maximum interest costs that can be expected with a probability of 95 per cent, subject to varying assumptions concerning e.g.
	www.nationalbanken.dk /DNUK/GovernmentDebt.nsf/side/Interest-Rate_and_Refinancing_Risk!OpenDocument (523 words)

	Looking forward: Market risk
		The market values for interest and foreign currency exchange risk are computed based on the present value of future cash flows as affected by the changes in rates that are attributable to the market risk being measured.
		At December 31, 2005, a 10 percent decrease in the levels of interest rates with all other variables held constant would result in an increase in the fair market value of the company’s financial instruments of $18 million as compared with a decrease of $172 million at December 31, 2004.
		A 10 percent increase in the levels of interest rates with all other variables held constant would result in a decrease in the fair value of the company’s financial instruments of $8 million as compared to an increase of $153 million at December 31, 2004.
	www.ibm.com /annualreport/2005/md_6mr.shtml (760 words)

	LaSalle Bank: Commercial: Interest Rate Risk Products
		We have the expertise, industry knowledge and deep resources to recommend effective ways to manage interest rate exposure.
		Regardless of your product choice, you will be provided a fast, convenient way to help protect your loans and investments from adverse changes in interest rates.
		Pre-hedge the interest rate risk in a future financing
	www.lasallebank.com /commercial/interest_rate.html (278 words)

	Understanding Interest-Rate Risk
		Some investors are confused by the inverse relationship between bonds and interest rates—that is, the fact that bonds are worth less when interest rates rise.
		Interest rates typically climb when the economy is growing, and fall during economic downturns.
		Similarly, rising inflation leads to rising interest rates (although at some point, higher rates themselves become contributors to higher inflation), and moderating inflation leads to lower interest rates.
	www.investinginbonds.com /learnmore.asp?catid=10&subcatid=47&id=178 (328 words)

Try your search on: Qwika (all wikis)