Managing risk
You'll learn how to manage interest rate risk using both internal and external methods, and understand when to apply each approach.
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In this lesson
- 0:00 Managing interest rate risk overview
- 0:48 Matching and smoothing approach explained
- 1:41 Asset and liability management strategy
- 2:14 Forward rate agreements introduction
- 3:02 FRA structure and quotation format
- 4:05 Identifying the correct FRA type
- 5:17 How FRAs protect against rate changes
- 5:59 Calculating FRA payments worked example
- 8:02 Interest rate derivatives fundamentals
- 9:11 Interest rate caps floors and collars
About this lesson
This video covers matching and smoothing strategies, forward rate agreements, and derivatives like futures, options, and swaps—all essential techniques for the Financial Management and Advanced Financial Management papers. Through worked examples, you'll see how forward rate agreements work in practice, how to calculate FRA payments, and why risk management focuses on achieving stable cash flows rather than maximising them. By mastering these tools, you'll be able to identify the right hedging strategy for different scenarios and demonstrate the technical competence examiners expect.
Duration: 10m
Transcript
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