Commercial Banks To Interest Rate Risk And Management

Finance plays a key role in modern economics markets, but in financial markets, banking is also the most important. Keeping the banks under stable situations, then we could obtain the durable developments of financial markets and economics in each country and the whole world.However, modern commercial bank risk is becoming higher and higher with the finance markets globalization and liberalization. So, in this paper, we want to analyze what factors cause commercial bank interest rate risk, how to measure the risk, how to avoid the risk and then make commercial banks to show its much better importance in finance and economics developments.First, in this paper, we analyze interest rate risk of commercial banks from three aspects. (1)defining interest rate risk from three aspects. (2)classifying interest rate risk in four kinds according to mechanics of interest rate risk (3)classifying interest rate risk in several kinds according to different interest rate risk factors. What's more, we continue to analyze the inner factors of interest rate risk, such as assets and debts structures, interest rate margin adjustment, inconsistent in interest rate decisions, and the exterior factors, such as economics situations, macroeconomics policies, financial markets, interest rates of the world and domestic political situations.Second, we analyze the theory of term structure of interest rates. Different terms of financial assets cause different interest rates, and then cause uncertainty of financial asset yield, then cause interest rate risk. We use yield curves to demonstrate that the same financial asset could have different yields because of different terms when interest rate varies. At the same time, we also analyze several varieties. Third, we analyze the evaluation of merchant bank interest risk using duration, gap, effective duration and convexivity. With effective duration, the price of assets or debts is much more sensitive to interest rate when the duration of assets or debts is much longer. With gap, the net return of interest rate will increase with the increasing of rate when the gap of interest rate sensitivity is positive; and the net return will decrease with the decreasing of rate. By contrast, when the gap of rate sensitivity is negative, the net return will decrease if rate increasing and it will then increase if rate decreasing.At last, we analyze interest rate management of commercial banks by the terms of theory and practice. In this paper, we use two main tools. One is interest gap management, and the other is financial derivatives management. The interest rate risk of commercial banks can be avoided because forwards, futures, options and swaps can hedge with the net returns after killing the deficits of commercial bank assets and debts.