Interest Rate Risk Management (CIMA Research) by Christine Helliar

By Christine Helliar

Monetary threat administration is presently topic to a lot debate, in particular the accounting for spinoff items, and a few commentators are objecting to the advent of foreign Accounting general IAS 39 for Derivatives that might be in strength by way of January 2005 for all european businesses. the subject of hedge accounting and the remedy of reasonable values could have an important influence on many businesses pronounced gains, and the volatility of profits is probably going to extend. Uniquely this monograph makes a speciality of rate of interest probability administration. such a lot stories of company possibility administration have usually dwelt relating to administration of trade cost chance, with rate of interest danger administration being ignored. The book's findings learn the perspectives of united kingdom company treasurers who're often excited about the chance administration suggestions in their service provider and who've accountability for imposing these recommendations in perform. * The examine is the 1st entire united kingdom examine in this quarter* correct to the approaching arrival of IAS 39, the foreign Accounting general for Derivatives that may be in strength by means of January 2005 for all european companies.* The findings of the e-book have implications for presidency coverage and regulators

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The companies operated in a wide variety of business sectors including leisure, manufacturing, property, raw mater-ials and services. The organisations also varied dramatically in terms of size, with sales ranging from the thousands to the multi-billion. However, most of the companies were very large, with sales in the billions. The exception to this were companies H and J, which were much smaller than the other companies. Nevertheless, these findings should be relevant to a wide range of businesses.

He further notes that ‘the volatility of interest rate payments can affect the credit rating and covenant interest coverage ratios’ (p. 47). 7 Derivatives usage: Evidence from prior empirical research One of the main activities of the treasury department in an organisation is the management of IRR. There are several ways in which this task can be accomplished, though one of the most common ways is to use derivative products, including interest rate swaps, forward rate agreements (FRAs), interest rate futures and options.

On 30 December 1994, a sample of members of the Treasury Management Association were surveyed. Phillips found that 63 per cent of companies used derivatives for either managing risk, obtaining funding or investing. This survey was broader than that of the Wharton school; Phillips focused on derivative securities as well as derivative instruments and, for instance, included bond issues with derivative features. He documented that 90 per cent of respondents thought that they were exposed to IRR, 75 per cent believed they faced FX rate risk and 37 per cent said that they were exposed to commodity price risk.

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