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Chapter 14

Interest rate risk

Outcome

By the end of this session you should be able to:

 describe and discuss gap exposure as a form of interest rate risk

 describe and discuss basis risk as a form of interest rate risk

 define the term structure of interest rates

 explain the features of a yield curve

 explain expectations theory, liquidity preference theory and market
segmentation theory and their impact on the yield curve

 discuss and apply matching and smoothing as a method of interest rate risk
management

 discuss and apply asset and liability management as a method of interest rate
risk management

 define a forward rate agreement

 use a forward rate agreement as a method of interest rate risk management

 define the main types of interest rate derivatives and explain how they can be
used to hedge interest rate risk

and answer questions relating to these areas.

The underpinning detail for this Chapter in your Integrated Workbook can
be found in Chapter 14 of your Study Text

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