Advantages of synthetic control

Flexibility, the existence of opportunities for rapid maneuver without changes to the bank's balance sheet, the ability to respond rapidly to variations in the ratio of assets and liabilities sensitive to interest rate changes. However, a prerequisite for the effectiveness of this method is the existence of a liquid futures market, which would allow to carry out operations with derivative instruments at any time and in any quantity. Hedging is carried out through operations such as forward contracts, futures and options, such as a combination of derivative transactions. A forward contract on interest rates (FRA) - a bilateral agreement in which the fixed interest rate and other terms of transactions involving cash or placement on a future date. One of the parties to such transaction is a party wishes to protect against rising interest rates and wants to buy a FRA (the buyer). Another contractor is a party who seeks to avoid the risks associated with a reduction in rates, and sells FRA (the seller). Forward contracts on interest rates are like in the interbank market, and between credit institutions (banks) and their customers. A futures contract on interest rates - an agreement between a seller or buyer, on the one hand, and the futures exchange clearing house, on the other hand, for the delivery or acceptance of a deposit on a standard amount of money under a certain percentage rate on a given date in the future. Category: Management Operations Commercial Bank | Tags: control