Measuring, Managing and Monitoring Interest Rate Risk
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We have experienced an unprecedently long period of low interest rates in recent years which has provided great opportunities within the financial markets. However, with interest rates rising there are multiple risks on the horizon and market participants need to be prepared for. This is why it is timely for organisations to make sure they are prepared by filling any skills gap they may have in the areas of measuring, managing and monitoring interest rate risks.
The course is designed to provide a comprehensive overview of the metrics that are used in quantifying the risk to earnings and capital which result from adverse developments in the interest rate environment.
There will be a detailed examination of the role of central banks with respect to monetary policy and the setting of benchmark interest rates. In addition, there will be an in depth treatment of how global capital markets respond to monetary policy. This will be supplemented with a probing and critical examination of the variety of tools available to treasury professionals for hedging funding requirements and income generating assets, and, in general terms, how to manage interest rate risk. In particular there will be a focus on significant changes to the interest rate environment of the last several years in response to the 2007/8 financial crisis.
BY ATTENDING THIS COURSE, YOU WILL DEVELOP A DEEP UNDERSTANDING OF:
- Current best practices regarding the management of interest rate risk
- Vital quantitative tools and metrics relating to the anticipation and mitigation of adverse developments in the interest rate environment
- Models that can be used for forecasting future direction of benchmark interest rates
- Quantitative methods for modelling changes in the term structure of interest rates
- The longer-term consequences of unorthodox policies (such as QE and negative interest rate policies) for treasury functions
- How to monitor money market spreads and volatility as precursors of changes in liquidity conditions
- The tools that are vital for stress testing and assessing the impact of adverse scenarios on the capital base and future earnings of an enterprise
- The regulatory framework – Basel III and other public policy measures – that pertain to the management of interest rate risk
- The dynamics of inflationary and deflationary forces in the global economy
- How to address unorthodox monetary policies and negative interest rates
- Future regulatory directions with respect to Interest Rate Risk in the Banking Book (IRRBB)
How You Will Learn
Packed with real-life practical case studies, keeping the course up-to-date
Exercises include; Excel models which permits the calculation of key bond metrics; Excel model to illustrate how Fed Funds futures can be used to estimate probabilities of decision by the Federal Open Market Committee (FOMC); Application of actual stress testing techniques applied to duration characteristics of a balance sheet Funds Transfer Pricing (FTP)
Case studies include: The Taylor rule as an alternative to judgement based monetary policy; Excel model illustrating duration gap measurement and impacts of changing the duration characteristics; Risks of prolonged period of ultra-low interest rates in developed economies; FTP as cornerstone of balance sheet and liquidity risk management