Week 3

Week 3 - Assignment: Assess Interest Rate Risk

Target and expand upon the best practices. Write a paper responding to the following items:

1. Support the re-pricing model for measuring interest rate risk exposure. If needed, feel free to include numerical illustrations for clarifying your discussion.

2. Argue the benefits of utilizing duration for measuring interest rate risk in financial institutions. If needed, feel free to include numerical illustrations for clarifying your discussion.

3. Using a commercial bank as an illustration, evaluate how interest rate risk can be managed (distinct from the measurement issue). Here, the objective is to control or mitigate risk under different assumptions and different risk tolerances.

Support your paper with five (5) scholarly sources.  In addition to these specified resources, other appropriate scholarly resources, including older articles, may be included.

Length: 5-7 pages not including title and reference pages

Your paper should demonstrate thoughtful consideration of the ideas and concepts presented in the course and provide new thoughts and insights relating directly to this topic. Your response should reflect scholarly writing and current APA standards.

Interest Rate Risk

The competitiveness of the global marketplace requires countries and firms to research and utilize new methods for leveraging both assets and liabilities. At times, such activities will also be used to respond to manipulations of current interest rates. That is to say, firms are looking for new approaches to assign risk and to capitalize on interest rate variations. Such risk, if it is predicted correctly, can increase a firm’s assets at an exponential rate. The challenge today is to ascertain what approaches have worked and what steps are likely to mitigate risk in the future.

Review the resources listed in the Books and Resources area below to prepare for this week's assignments.