Market Measure and Mitigation of Interest Rate Risk

The ongoing turmoil in the international financial markets especially in the
United States saw regulators as well as Governments responding with extraordinary measures to restore stability in the financial system. The plights of so-called invincible financial institutions like AIG, Lehman Brothers, Bear Sterns, Goldman Sachs, Morgan Stanley including Washington Mutual,
Wachovia, Fortis, HBOS, Bradford & Bingley etc. have caused shiver in the minds of investors worldwide. The ripple effect of such disturbances is also
being felt in our country which is already grappling with the high level of inflationary pressures during the recent times. In order to respond to the tight liquidity situation Reserve Bank of India (RBI) has raised the interest rate on NR(E)RA deposits in order to prevent premature cash outflow, has allowed scheduled banks to avail additional liquidity support under the liquidity adjustment facility (LAF) to the extent of upto one per cent of their net demand and time liabilities and introduced a second LAF (SLAF) on reporting Friday etc. Liquidity crisis and interest rate stress being the two ides of the same coin BIS has emphasized the design and use of severe stress test scenarios in the 2008 review of its “2000 Sound Practices for Managing Liquidity in Banking Organizations”. As per BCBS Chairman, Dr Nout Wellink, our limited or zero knowledge of unexpected events is causing the failure of the science of risk management in unveiling the events of the world completely. Hence, a globalized world requires “continuous education, discussion and peer to peer stimulation to keep up with the pace of exactly these unexpected events”. In this context, the captioned Programme aims to present the science of market measuring and the art of mitigating interest rate risk to those concerned and hence proposes the following menu for discussion in

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