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January 30, 2015

Evaluating Derivatives―Part III: Economic Value as Rates Change Instantly

This blog will begin to review the economic value of a swap when testing an instantaneous rate change. This builds on the blog Evaluating Derivatives—Part II:  Economic Value.  As before, the example swap has the following terms: 7-year term Notional amount: $100 million Credit union pays fixed rate of 2.00% Credit union receives 3-month LIBOR […]

January 15, 2015

Evaluating Derivatives―Part II: Economic Value

In a previous blog, impact to earnings was discussed as it relates to derivatives and the insurance they can provide against a rising rate environment. While derivatives can be a good option for hedging interest rate risk, especially in today’s low rate environment, it is also important to consider how economic values are determined. Because […]

December 12, 2014

Evaluating Derivatives—Part I: Earnings

While derivatives can be a good tool for mitigating interest rate risk, it is important for credit unions to understand the cost of the protection they are purchasing. This example uses an interest rate swap with the following terms to illustrate: 7-year term Notional amount: $100 million Credit union pays fixed rate of 2.00% Credit […]

February 28, 2013

Excerpt: A Few Things To Consider Before Purchasing A Derivative

While many credit unions work on what seems to be a more immediate issue – increasing loan volume – it is important not to forget the looming issue of interest rate risk. Rates have been at historically low levels since the end of 2008 and the Federal Reserve has indicated it expects rates to remain […]

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