INTEREST RATE RISK > Strategy > Timing > Transaction > Monitoring
Which instrument is suitable for hedging your interest rate risk? An interest rate cap? An interest rate swap? A swaption? Or a combination? All of these tools have their drawbacks and benefits. We describe these in detail in our white paper that you can download at the bottom of this page.
When actually executing your intended hedges, you will have to deal with the complex and intransparent pricing of these derivatives. Ultimately, your bank's trader determines the commercial charges, trying to maximise the bank's revenue. Commercial charges north of tens or even hundreds of thousands of euros per transaction are no exception. We also explain how this works in our interest rate white paper.
We will (jointly) select and approach the bank(s) where you can execute the intended hedge(s) and inform them accordingly. These are often the banks where your financing is arranged, but there may be multiple banking relationships or even situations where no bank financing (i.e. a debt fund) is involved. In these cases, we will mobilise our network to find a suitable party. Prior to the transaction, we evaluate bank proposals, assessing and where possible improving pricing (interbank mid-rate, volatility, commercial charges, etc.) using real-time pricing systems also used by banks.
Then, when the timing is right, we will provide live support during the actual transaction with the bank(s), to guarantee that the pre-negotiated conditions are upheld and prevent traders from opportunistically squeezing out additional margin. Finally, after the transaction, ICC will supply a Trade Recap that can be shared with stakeholders, describing the hedge and transaction process.
