Interest rate risk management

This executive summary reports the findings from an investigation into the interest rate risk management (IRRM) practices of UK firms. It is based on a more detailed report of the same name. Details of where to find this can be found at the end of this executive summary.

Risk has become very prevalent in society and responsibility for the management of risk, in the guise of corporate governance, has hit the headlines after many recent scandals. Financial risk, in particular, has dominated the discussion in the media, which has focused on the use of fraudulent financial transactions, special purpose vehicles and accounting abuses. Financial risk has also hit the headlines as a result of derivative transactions that are normally used to reduce or hedge risk not working as anticipated, such as at Orange County and Gibsons Greetings.The illegal use of derivatives by rogue traders such as Nick Leeson at Barings Bank and John Rusnak at Allied Irish Bank have further served to concentrate the spotlight on corporate risk management practices.

Topics covered:

Management accounting: Technical: Corporate finance & treasury management: Treasury policies & treasury risk management, Advanced

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2 Comments/Reflections

Neil Henfrey Nov 2015

I was disappointed that this article was so out of date (2005) given it was suggested as appropriate material.

The article's findings were not particularly enlightening.

The impact of IAS39 on hedging strategy was potentially important at the time the article was written - given we are now 10 years on this could be refreshed with the actual impact. My hunch is that a lot less hedging now goes on due to the impact of IAS39.

Whenever interest rate hedging is discussed it is usually in the context of floating rate = risk, fixed rate = certainty. Whilst the article does not overdo this, the reality is that fixed rate can also be risk in the world of mark to market valuations, not only in the accounts but if the capital structure changes such that the debt is no longer needed. This point needs making more often.

Neil Henfrey Nov 2015

I was disappointed that this article was so out of date (2005) given it was suggested as appropriate material.

The article's findings were not particularly enlightening.

Technical

Interest rate risk management

2 Comments/Reflections

Neil Henfrey Nov 2015

Neil Henfrey Nov 2015

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