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Interest Rate Risk Management and the Use of Derivative Securities

Author

Listed:
  • Ioana-Diana PÃUN

    (University of Economic Studies, Bucharest, Romania)

  • Ramona GOGONCEA

    (University of Economic Studies, Bucharest, Romania)

Abstract

This study aims to demonstrate the utility of derivative financial instruments for the management of interest rate risk that is faced by banks and financial institutions, and to provide an efficient flow of monitoring and control thereof. Banking institutions can now use a combination of balance sheet and off balance sheet measures, i.e. gap method, of interest rate risk management, in order to control exposure of short-term rates and derivatives to control the residual interest rate exposures. The result of the study shows that banks can achieve better diversification and risk management using derivatives.

Suggested Citation

  • Ioana-Diana PÃUN & Ramona GOGONCEA, 2013. "Interest Rate Risk Management and the Use of Derivative Securities," Economia. Seria Management, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 16(2), pages 242-254, December.
    • Handle: RePEc:rom:econmn:v:16:y:2013:i:2:p:242-254
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    References listed on IDEAS

    as
    1. Gary Gorton & Richard Rosen, 1995. "Banks and Derivatives," NBER Chapters, in: NBER Macroeconomics Annual 1995, Volume 10, pages 299-349, National Bureau of Economic Research, Inc.
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    3. Purnanandam, Amiyatosh, 2007. "Interest rate derivatives at commercial banks: An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1769-1808, September.
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    5. Elijah Brewer & William E. Jackson & James T. Moser, 2001. "The value of using interest rate derivatives to manage risk of U.S. banking organizations," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 25(Q III), pages 49-66.
    6. Bernadette Minton & René Stulz & Rohan Williamson, 2009. "How Much Do Banks Use Credit Derivatives to Hedge Loans?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 35(1), pages 1-31, February.
    7. William B English, 2002. "Interest rate risk and bank net interest margins," BIS Quarterly Review, Bank for International Settlements, December.
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    More about this item

    Keywords

    interest rate risk; banking industry; derivative securities; risk management.;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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