c. notes – Considering Derivatives?
May 7, 2015
Credit unions purchase derivatives for interest rate risk (IRR) protection. As we consider the value that can be obtained from derivatives, it also makes sense to ask how that protection may change over time and if there are circumstances that might make the protection not as beneficial.
Many of our clients are using or considering derivatives as a tool for mitigating interest rate risk. While c. myers does not sell derivatives, we regularly model their impact on our clients’ financial structures to show the risk and reward trade-offs. As we model and discuss these with our clients, we’ve made some observations and identified some questions that help bring a greater understanding to what a credit union might expect. We believe that introducing additional tools to help credit unions address interest rate risk is a very good thing and, as with any new tool, it’s important to understand how it can be used and what risk and reward trade-offs it offers.
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