Interest rate risk

Floating-rate borrowers face higher cash interest when reference rates rise, while depositors may receive less when rates fall. Fixed-rate instruments have different exposure: their market values generally change when required yields change, even when contractual cash payments do not. Analyse the amount, timing, currency, benchmark and reset terms before selecting a response. Matching, fixed-rate finance, FRAs, swaps, futures and options can manage particular exposures but leave costs and other risks. A hedge appropriate for a future deposit can have the opposite direction from one for future borrowing.