Interest rate management: advanced techniques

Article Abstract:

Two advanced interest rate management techniques available to corporate treasurers are duration analysis and simulation analysis. While adjusting cash flows through the volatilities of the instruments improves the accuracy of the net exposure, there are still problems with managing the many gaps. Duration analysis, by converting cash flows to present value through the use of the appropriate discount rate, is able to correct for gapping problems. Besides being an excellent measure of a bond's life, duration analysis can be used to prove that changes in bond price with respect to discount factor changes is equal to its duration. Simulation analysis models produce results in either forward-looking or dynamic ways while maturity gap and duration analysis models create static results. Simulation models measure interest rate risk and current, future, and probable risks for alternate balance sheet treatments and are excellent for planning.

United Kingdom, Forecasts and trends, Interest rates, Simulation methods, Simulation, Great Britain, Corporations, British, Financial research

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Managing foreign exchange: translation risk

Article Abstract:

Translation risk occurs when the amounts of a company which are fixed in a foreign currency are translated to their sterling equivalents. Translation risk does not have an immediate cash effect because it does not involve a foreign exchange transaction. Reported values such as consolidated net worth may be changed, and the company's ability to borrow funds may therefore be adversely affected. The two types of translation risk are balance sheet translation and profit and loss translation.

Accounting and auditing, International business enterprises, Multinational corporations

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Managing foreign exchange: a balance of variables

Article Abstract:

A company's foreign exchange trading policies should be formulated only after management has addressed several relevant issues. These include: corporate attitudes toward risk; the materiality of currency exposure; management style, together with the degree of corporate centralization or decentralization; and the structure of the competitive environment.

Management, Risk management

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