. Protecting Interest Income/Revenue • From the banker’s point of view, when the banker quotes a floating interest, in doing so, the banker is passing on the interest rate risk to the borrower. • What if the banker has to quote a fixed interest rate but his cost of funds are floating? In this case, the customer/borrower faces no risk but the banker does. • Example: As a Credit Officer bank you have agreed to provide a customer with a fixed rate, 3-month, RM 20 million loan 90 days from today. You had priced the loan at 12% annual interest rate. • The following quotes are available in the market. 3-month KLIBOR = 9 % 3-month KLIBOR futures = 90.0 (matures in 90 days) Explain.How would you protect yourself from a rise interest rates?
2. Protecting Interest Income/Revenue
• From the banker’s point of view, when the banker quotes a floating interest, in doing
so, the banker is passing on the interest rate risk to the borrower.
• What if the banker has to quote a fixed interest rate but his cost of funds are floating?
In this case, the customer/borrower faces no risk but the banker does.
• Example: As a Credit Officer bank you have agreed to provide a customer with a fixed
rate, 3-month, RM 20 million loan 90 days from today. You had priced the loan at 12%
annual interest rate.
• The following quotes are available in the market.
3-month KLIBOR = 9 %
3-month KLIBOR futures = 90.0 (matures in 90 days)
Explain.How would you protect yourself from a rise interest rates?
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