Treasury chap 5

can be defined as the process by which individuals, organizations, or financial institutions manage their exposure to potential losses that arise from fluctuations in interest rates.

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Interest Rate Risk Management

involves strategies and actions taken by individuals or organizations to effectively control, mitigate, or leverage the impact of interest rates on their financial operations.

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Interest rate management

This management is crucial because interest

rates influence borrowing costs, investment

returns, and overall financial health.

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Interest rate management

■ Defined as the cost of

borrowing money

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Interest

Compensation for the service

and risk of lending money

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Interest

Can be classified as simple

interest or compound interest

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Interest

The cost of borrowing money or the price paid for the rental funds, the ratio of interest to the amount lent

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Interest rates

Have an impact on the overall health of the economy because they affect consumers willingness to spend, save or make business investment decisions.

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Interest rates

requires a combination of financial

analysis, risk assessment, and strategic

decision-making tailored to individual

or organizational financial goals and

circumstances.

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Effective interest rate management

How interest rates are

determined?

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■ Supply and Demand

■ Inflation

■ Government –Monetary Policy

■ Types of loans

■ Time/ Period