We have been told the following information: Liabilities Assets PV 100m 90m Duration 20 22 Yield 1.5% 1.55% Discuss the effectiveness of this strategy for hedging interest rate risk? I calculated the PV01 of assets and liabilities, then a interest rate ratio of just less than 1 - concluding it is a good hedge. There are no calculations in the answers. Would this sort of calculation gain any credit in the exam?
Hi Oliver As a broad principle I think it is always good to see what can be done with numbers given in the question because it may gain credit. However, as you say, there are no calculations in the Examiners Report, so it may be that they wouldn't have awarded credit for a calculation on this occasion. Gresham
