Page 13 - PowerPoint Presentation

THE TREASURY FUNCTION

Interest rate risk

Internal hedging techniques:

• Matching the term and duration of floating rate

debt and floating rate investments as far as

possible (natural hedge)

• Smoothing: maintaining a mix of floating rate

and fixed rate debt (only exposed to interest

rate risk on one portion of debt portfolio)

• Pooling: using cash surpluses within a group to

offset cash shortages so that the group does not

expose itself to unnecessary interest rate risk

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