How you would hedge the risk of offering

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Write a short briefing report to the senior management team of your financial institution (not to exceed 1,500 words).

You work for a building society (i.e. mortgage bank/company) and you want to offer a 10 year fixed rate mortgage at a rate of 2.5%.

Your main business is to take short term deposits from retail investors and to offer mortgages. Carefully explain to a new non-executive director how you would hedge the risk of offering such a low fixed rate mortgage.

Also outline to the non-executive director how you would calculate the fixed rate mortgage rates which you consider offering.

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The report attached is a briefing report which consists of the procedures of the fixed rate fixing for the mortgage loans. Also the rates fixed are subjected to the risk. The details of the risks and hedging risk procedures discussed in the report. There is also discussion on the calculation of the fixed interest rates for these mortgage loans.

Reference no: EM131595659

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