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elearning > Basis risk

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Learn about the following:

What basis risk is. How basis risk can affect you. How basis risk can be measured. How basis risk can be hedged. The problems with basis swaps.

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Course Summary

Basis risk menuBasis risk what it isBasis risk in the balance sheet

Basis risk measuredBasis risk measuredManaging basis risk

  • 30 minutes
  • 8 question multiple choice test
  • What basis risk is
  • How basis risk can affect you
  • How basis risk can be measured
  • How basis risk can be hedged
  • The problem with basis swaps

Basis Risk - the details

1. What basis risk is

  • How retail financial institutions incur basis risk
  • Example, Libor-Bank rate mismatch
  • The implications of a mismatch
  • How this can lead to gains and losses
  • The “normal” situation
  • What happened in 2007-8
  • How this can lead to large windfall gains or losses
  • Affect on customers and administered rates

2. Measuring basis risk

  • Basis mismatch reporting
  • Example of a simple report
  • Categories of interest rate
  • Net exposures
  • What this tells you about your risk
  • Quantification with a basis point value
  • Strengths & weaknesses

3. Managing basis risk

  • Natural hedges
  • Basis swaps
  • Difficulties with basis swaps
  • Mark-to-market
  • Market liquidity

4. Summary

5. Test

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