STEPS TO MITIGATE INTEREST RATE RISK.

       STEPS TO MITIGATE INTEREST RATE RISK.

Interest rate uncertainties are managed through proper  management of assets and investments.As an investor i would ensure:

1.Diversification- invest in  different portfolios  this helps reduce severity of Interest rate risk as the investors is able to offset losses incurred in One investment with gain realised from another investment.

2.Management of assets and liabilities by measuring the ability of an investment to tolerate  occurrence of a risk, ensuring balance between loans with fixed rate  and loans variability  and using assets to offset liabilities.

3.Purchasing of a forward rate agreement with a fixed rate thus reducing the risk associated with interest rate risk.

4.Using interest rates derivatives by considering  the market environment  therefore buying of futures incase of low income,selling of futures when interest rates are rising, use of interest rate swap and lastly the use of option future thus reducing any additional risk.

5.Hedging the risk by taking an insurance cover this  help reduce  the risk  whereby  incase of an occurrence of interest rate risk the investor will  be compensated..

AGE AND CURRENT ECONOMIC STATUS ROLE IN INTEREST RATE RISK TOLERANCE.

I believe age and current economic status are key factors affecting interest rate risk tolerance Whereby interest rate risk tolerance reduces with age.As An individual’s age goes up they tend to reduce the severity of Interest rate risk of their investments while the younger people Have  high risk takers  and they Will tend to invest in high risk investments as they have time the can still recover their losses.

Current economic status affects  Interest rate risk tolerance  whereby investors with stable Economic status Will tend to invest in risky portfolios as they Have huge income appetites while investors with unstable Economic status are cautious and there invest in Low Interest risk areas thus Low interest risk tolerance.