Capital Markets Examiner School, Providence, RI

Organic vs. Hedging

Balance Sheet Hedging

 Effective and efficient way to manage interest rate risk on the balance sheet

 Requires higher level of strategic thinking

 Formal declaration and explanation of hedging strategy

 Protecting the margin

Derivative Terminology

• Swap

• Cap/Floor

• Notional

• Rate

• Counterparty

• Effectiveness