Interest rates and risk
In this lesson, you'll learn how to identify and manage interest rate risk—a critical skill for the FM and AFM papers. We explore the difference between fixed and variable interest rates, why organisations face exposure to rate fluctuations, and how hedging strategies help protect cash flows and profitability.
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In this lesson
- 0:00 Managing Interest Rate Risk Overview
- 0:31 Fixed and Variable Interest Rates Explained
- 2:33 Understanding Interest Rate Risk Impact
- 3:52 Why Companies Hedge Interest Rate Exposure
- 4:56 Balancing Fixed and Variable Rate Debt
About this lesson
You'll discover the key reasons companies use financial instruments like forward rate agreements, futures, options, caps, floors, collars, and swaps to lock in favourable rates and maintain a healthy balance between fixed and variable debt. Understanding when adverse movements occur—rate rises for borrowers, rate falls for savers—is essential for exam success and real-world financial planning.
Duration: 5m
Transcript
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