What exactly is “interest rate risk” and how does it affect (a) financial institutions and (b) their clients? How can financial institutions effectively manage interest rate risk, both through traditional means

Question(s)/Issue(s) for Discussion 05: Based on your reading of the chapter and the exposure you have had till now to the managing of financial institutions, please answer the following three questions, for a total of forty (40) points: What exactly is “interest rate risk” and how does it affect (a) financial institutions and (b) their clients? How can financial institutions effectively manage interest rate risk, both through traditional means (using balance sheet adjustments) and non-traditional means (say, by using derivatives)? (10 points) Briefly discuss the goals of the “Dodd-Frank Act” and the major proposed changes to managing financial institutions, with specific reference to their risk management activities. What—in your views—are the perceived and/or real advantages and disadvantages of the certain specific provisions of the Act, such as “Title VII” and similar guidelines. (10 points) Given the current financial and political environment–think SVB, Signature Bank, and just in the last few days, First Republic Bank–what do you think would be the future of risk management in large banks? Do you think the proposed regulations, including recent popular issues like the Volcker Rule, the Vickers’ Rule, etc., will increase hedging activities or decrease speculation? Is current rush to re-regulation necessarily a good or bad thing, and why? (20 points)​