The paper "Managing of Interest Rate Risk" is a great example of a finance and accounting essay. Interest rate risk can be defined as the risk that is found within assets that are interest-bearing such as a bond or a loan, as a result of the probability of change that can occur in the asset value due to the variability of interest rate (Jonathan2007). Such kind of variability or changes frequently impact securities adversely and can further affect investments made by a business. The concept of management of interest rate risk is a very essential and assorted instrument that is devised in order to tackle the phenomena of interest rate risk, as a result, a corporate treasure should be very keen in handling aspects of Interest rate risk. This particular presentation aims at evaluating the major factors that a corporate treasure should consider in the process of managing interest rate risk.
Secondly, the presentation will cover the strategies that can be adopted in order to effectively manage interest rate risk for their companies. In addition, the analysis will cover the limitations of the interest rate hedging strategy. Factors to consider in Managing Interest Rate Risk A corporate treasurer should make certain that there is a satisfactory separation of duties in the potential elements of the risk management process, in order to eliminate any sort of conflict of interests that may arise.
The treasurer should ensure that there is no chance of individuals investing in risk-taking positions which may influence inappropriately the essential functions of the risk management procedure such as the enforcement of procedures and policies and development. The establishment of monitoring, control and measurement functions that outline well-defined duties assist in the reporting of risk exposure directly to the management.
If possible the corporate treasurer can also create an independent unit that can assist in the monitoring, measurement and control of interest rate risks. Another essential factor that a corporate treasurer has to consider in managing interest rate risk involves having a sufficient internal control system over the process of interest risk management. A fundamental element of the internal control system entails regular evaluations and reviews of how effective the system is, where appropriate, making certain that the relevant internal controls enhancements are developed.
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Timothy, G .(2004). Managing interest rate risk in a rising-rate environment, RMA Journal.