The Use Of Interest Rate Swaps By Commercial Banks

Manchester Metropolitan University
The Graduate Business School

The Use of Interest lay Swaps by Commercial Banks

By

Lyes BOUKRAMI

Graduate Business School Minshall edifice Accounting and Finance Chorlton Street Manchester Lboukrami@hotmail.com

Abstract

The need for the management of invade rate risk has driven bank managers to exercise newfangled pecuniary tools. Banks entertain rate exposure associated with a pair between assets and liabilities can be heedful using traditional GAP and duration GAP analysis. Derivatives instruments are new tools utilize by banks in order to adjust the amount of mistaken use up rate risk. These instruments include engage rate swaps, amuse rate futures and forward rate agreements. This scan using yearly data for the year 2001 tried to shed some clean-living on the pattern of interest rate swap use for asset liability purposes by a number of tether US Commercial banks. Thus the banks specific characteristics (size, asset quality, capitalisation, profitability, interest rate risk profile) are regressed against the notional amount of the interest are swaps reported as hedging activities. The results suggests that larger banks (as measured by the number of total assets) tend to use interest rate swaps more intensively than smaller banks.



In addition, the study has found that banks with better asset quality tend to be more intensive users of interest rate swaps than those with weaker asset quality. finally the study found that banks with high capitalisation are big users of the interest rate swaps than those with lower capitalisation.

1. Background of the Study:
Banks want any profit maximising organisation confront a variety of risks which we can classify into two broad categories, videlicet macroeconomic risks (for example, the effects of recession) and microeconomic risks (for example, new competitive threats). However, in that respect is a number of risks banks face that are atypical of non financial firms. These risks can...If you want to get a full essay, order it on our website: Orderessay



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