Interest Rate RiskOn a daily basis, traders balance the net payments and receipts for each currency through a special type of swap, called tomorrow/next or rollover. To minimize this type of risk, management sets limits on the total size of mismatches. The policies differ among banks, but a common approach is to separate the mismatches, based on their maturity dates, into up to six months and past six months. All the transactions are entered in computerized systems in order to calculate the positions for all the delivery dates and the profit and loss. Continuous analysis of the interest rate environment is necessary to forecast any changes that may impact on the outstanding gaps.
To continue learning about the types of foreign exchange risks, click on the link below. Return from Interest Rate Risk to Forex Risks. And to skip it and go straight to get a deeper sense of what forex is all about, click on the link below. Return from Interest Rate Risk to Foreign Exchange Center.
|
