Interest Rate Risk Repricing limits Repricing limits are set for interest rate management. These limits control exposure by controlling the volume or amount of securities that are repriced in a given time period. By staggering the repricing of the securities the company can reduce the
Counterparty Risk Limits PSR Limits Pre-settlement risk (PSR) is the risk that a counterparty to a transaction, such as a forward contract, will not settle or honour his/ her end of the deal. PSR limits are based on the worst case loss that is likely to
Other Limits Duration Limits Duration measures the sensitivity of the price of the product/ value of the portfolio to changes in the interest rate. In order to limit the sensitivity the company needs to decide what the acceptable level of duration for the product/ portfolio
Value at Risk Limits The company would need to decide on the level of VaR based on the risk appetite of the company. Odds VaR Limits 1:99 99% 1:9 90% 1:4 80% 1:3 75% 1:2 66% 2:3 60% They would also need to decide on
Capital Loss and Stop Loss – Defining risk appetite? Stop loss limits Stop loss limits act as a safety valve in case something starts to go wrong. Stop loss limits state that specified action must take place if the loss exceeds a threshold amount. Tight
For control and governance purposes the Treasury limit management function is kept under a separate group called the Middle Office with its own independent reporting line. The Middle Office function tracks and reviews treasury exposures on a day to day basis and technically in collaboration with the business users is expected to review limits whenever a change in market conditions requires it.