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Measuring Interest Rate Risk in the Treasury Operations of an International Industrial Company Group: A Case Study of Toyota Industries Finance International
Linköping University, Department of Management and Engineering, Business Administration.
Linköping University, Department of Management and Engineering, Business Administration.
2012 (English)Independent thesis Advanced level (degree of Master (One Year)), 20 credits / 30 HE creditsStudent thesis
Abstract [en]

Background: The volatility in the interest rate market have increased during the last decade and this have made interest rate risk management more important for  both financial institutions and non-financial companies with short- and long term financial commitments.

Objective: The main objective of this thesis is to analyze different ways of measuring interest rate risk in the treasury operations an international industrial company group. Further, the study will also examine the way treasury departments of international industrial company group’s measure interest rate risk and explain why this method have been chosen.

Method: The research method of the thesis is a case study and a mix of both quantitative and qualitative data has been used to conduct it. The quantitative data have been secondary data received from TIFI’s treasury management software and the qualitative data have been collected through a survey with eight treasury managers from other international industrial company groups.

Conclusion: The repricing model is suitable because it is straight forward, fairly easy to communicate to management and it focuses on the book value. However, defining relevant time buckets might be difficult. The duration model is a good measurement tool because it can be used in a variety of ways, but a disadvantage is that it focuses on the market value, which might not be appropriate for treasury departments. Stress testing captures the true change in market value, but demands forecasts about future interest rate movements and lacks tools to manage the interest rate risk.

Treasury departments of international industrial company groups use a variety of measurement methods. The most frequently used methods are duration-, maturity- and Value at Risk models and different kinds of stress tests. The method should not only measure the interest rate risk in a correct way but it should also be easily explained to management and other executives in the company that might not have knowledge about financial economics.

The main difference between treasury departments and commercial banks is that commercial banks try to earn money on interest rate fluctuations, whereas treasury departments want to minimize the impact of interest rate fluctuations in order to support the company group’s core business.

Place, publisher, year, edition, pages
2012. , 61 p.
Keyword [en]
Interest rate risk, treasury department, duration model, convexity, repricing model, stress test
Keyword [sv]
Ränterisk, treasury, duration, konvexitet, repricing, stresstest
National Category
Business Administration
URN: urn:nbn:se:liu:diva-78883ISRN: LIU-IEI-FIL-A--12/01207--SEOAI: diva2:536514
Subject / course
Master Thesis in Business Administration (Magisteruppsats i Företagsekonomi)
Social and Behavioural Science, Law
Available from: 2012-08-15 Created: 2012-06-21 Last updated: 2012-08-15Bibliographically approved

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