Mastering Interest Rate Risk Strategy A practical guide to managing corporate financial risk The Mastering Series

Financial institutions, private and public companies and governments can lose vast amounts of money from even minor changes in interest rates. Because of this, complex financial instruments have been developed to mitigate these exposures. But what happens when organisations hedge themselves to ill-advised and ill-formulated financial management strategies?

Based on a proven analytical method, Mastering Interest Rate Risk Strategy explains, step-by-step, how to set up and run a sound interest rate risk strategy. Influenced by the author?s work with leading companies and tested with banks, the book will help readers bring risk under control, raise profits and ensure healthy cash flows.

Mastering Interest Rate Risk Strategy:

§  Shows you how to mitigate interest rate risk using the most advanced risk management techniques

§  Provides you with an analytical method that is proven both academically and in practice

§  Uses examples and real life cases to support the transfer of knowledge and skills

Interest rate changes will affect most firms because they will have interest bearing assets or liabilities. As a result, interest rate movements have an unfavourable impact and managing interest rate risk can be highly beneficial for the firm. But high-profile derivative blunders show that this is no easy task.

In Mastering Interest Rate Risk Strategy, Victor Macrae shows you how to avoid the mis-selling of derivatives and derivatives blunders and how to set up an optimal interest rate risk strategy.

Mastering Interest Rate Risk Strategy includes:

?    Past derivatives blunders and how you can learn from them

?    A proven analytical method for strategy formulation

?    Hedging theory

?    Bank financing for non-financial firms

?    How movements in the financial markets may affect the firm

?    Financial statement impact of interest rate risk

?    The working and risks of using swaps, FRA?s, caps, floors, collars and swaptions

?This is a wonderful and easy to read tour of interest rate risk and its management, and mismanagement. Anyone who wants to better understand why and how non-financial firms should be dealing with interest rate risk should read this book.?

Gordon M. Bodnar, Professor on International Finance, Johns Hopkins University

?Macrae?s guide is an excellent cookbook for financial managers. With many cases and examples, this book offers guidance in robust risk management techniques.?

Abe de Jong, Professor of Corporate Finance and Corporate Governance at Rotterdam School of Management, Erasmus University

• Part 1 KEY LEARNING POINTS FROM PAST DERIVATIVES BLUNDERS
• 1 Introduction
• Part 2 UNDERSTANDING THE FIRM’S EXPOSURE TO INTEREST RATE RISK
• 2 Four sources of exposure to interest rate risk
• 3 Bank financing as primary source of exposure
• Part 3 MEASURING THE IMPACT OF INTEREST RATE RISK ON THE FIRM
• 4 The financial markets
• 5 Financial statement impact from interest rate movements
• Part 4 HEDGING MAKES SENSE UNDER SPECIFIC CIRCUMSTANCES ONLY
• 6    Introduction
• Part 5 SELECTING THE BEST POSSIBLE DERIVATIVE
• 7 Interest rate derivatives
• 8 Linear derivatives
• 9 Options
• Part 6 How to formulate the optimal strategy: The analytical method
• 10   Introduction
• Appendix I: Central case Trader
• Appendix II: Proof of the analytical method
• Resources
• Glossary
• Index

Dr Victor Macrae runs Macrae Finance, a consulting firm advising global financial corporations such as ABN Amro, Deutsche Bank and ING Bank. Based in The Netherlands he has a PhD in financial risk management and his MBA is from Nyenrode University. He has worked for major banks including ING Barings and was formerly treasurer at Wolters Kluwer.