Historically banking was seen as a simple business, but things have changed in recent times. As new products and services appear in the industry, they are affected by interest rates in different ways. For much of the 20th century, interest rates in major economies were docile creatures. There was little variation in absolute rates, and the term structures (yield curves) were mildly positive. More recent decades saw a dramatic change. Rates and curves became much more volatile, and yield curves would move from positive to negative (or vice versa) in short periods of time. This course - the first of two on managing interest rate risk - looks at the issues surrounding the identification of this type of risk and the subsequent measurement of it. A second course will focus on the structures banks put in place to manage interest rate risk and the various approaches to such management.
Prior to completing this course it is recommended you undertake:
- Risk - Measurement & Management
This online course forms part of the Intuition short course suite.
Learning objectives
- Identify the key sources of interest rate risk for a banking business
- Describe how gap and duration measurements are used to quantify the extent of interest rate risk from different perspectives
