Question

How financial institution manager mange the interest rate risk? ( tools ) in details please

Answer 1

To manage the interest rate Risk which means to mitigate it ( hedge ) or amplify the profit by favourable move of interest rate curves (speculate) , this can be achieved by various Products or tools available.

1)Bonds / Debt Instruments - Treasury bonds without credit Risk can be used directly to manage our interest rate risk as the spread moves on the interest Rate curves is the only factor that results in the price moves for such bonds.

2) Swaps - Interest Rate Swaps can be used to manage interest rate risks  where in we could swap floating rate debts for fixed rates and vice versa

3) Futures - Interest rate futures can be used to lock the prices of bonds of futures dates or speculate on it .