Derivatives to hedge exposure to decreasing interest rates

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Reference no: EM132070254

1. Describe the advantages and disadvantages of financial intermediation compared to direct finance.

2. Describe the two different ways in which an ADI may be exposed to interest rate risk. What would it do – in respect of the two different aspects of interest rate risk – if it thought interest rates were going to increase in the near future and wanted to take advantage of this prediction? Explain how these actions will be of benefit if interest rates do increase as predicted?

3. Describe how a bank could use derivatives to hedge an exposure to decreasing interest rates.

Reference no: EM132070254

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