Mastering Interest Rate Risk Strategy

Part 3

MEASURING THE IMPACT OF INTEREST RATE RISK ON THE FIRM

4. The financial markets

5. Financial statement impact from interest rate movements

INTRODUCTION TO PART 3

Core to Part 3 is measuring the impact of interest rate movements on the financial statements of the firm. In order to examine these effects, we first have to understand the workings of the financial markets where the fluctuations of the variable interest rate originate.

Part 3 is the second out of four stages in a firm’s interest rate risk management process. It builds on the sources of exposure to interest rate risk examined in Part 2.

I’ll discuss the workings of the financial markets as they determine the firm’s interest payable and receivable. Then, I’ll examine the ...