{"id":26116,"date":"2013-05-18T13:24:52","date_gmt":"2013-05-18T07:54:52","guid":{"rendered":"http:\/\/vskills.in\/certification\/tutorial\/?p=26116"},"modified":"2024-04-12T14:18:33","modified_gmt":"2024-04-12T08:48:33","slug":"interest-rate-risk-management","status":"publish","type":"page","link":"https:\/\/www.vskills.in\/certification\/tutorial\/interest-rate-risk-management\/","title":{"rendered":"Interest Rate Risk Management"},"content":{"rendered":"\n
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Interest Rate Risk Management- Interest rate risk uncertainty is the potential for investment impairments that result from a difference in interest rates. If interest rates rise, for example, the value of a bond or other fixed-income investment will degenerate. The change in a bond\u2019s price given a change in interest rates is known as its duration. Interest rate changes can affect many investments, but it impacts the value of bonds and other fixed-income securities most directly. Bondholders, therefore, carefully monitor interest rates and make decisions based on how interest rates are perceived to change over time.<\/p>\n

The risk can be overcome by taking bonds of different durations, and investors may also reduce interest rate venture by hedging fixed-income purchases with interest rate swaps, options, or other interest rate derivatives. Risk can be managed through hedging or diversification strategies that reduce a portfolio\u2019s effective duration or negate the effect of rate changes.<\/p>\n

To manage interest rate risk, two methods are used.<\/p>\n