Analysis of the Impact of Interest Rate Derivatives on the Market Risk of Commercial Banks in China

Research Article
Open access

Analysis of the Impact of Interest Rate Derivatives on the Market Risk of Commercial Banks in China

Wanlin Zhao 1*
  • 1 The Mathematics and Statistics, University of Sheffield, Sheffield, UK, S3 7TD    
  • *corresponding author whitneylinzhao@gmail.com
Published on 27 April 2023 | https://doi.org/10.54254/2754-1169/6/2022181
AEMPS Vol.6
ISSN (Print): 2754-1177
ISSN (Online): 2754-1169
ISBN (Print): 978-1-915371-23-2
ISBN (Online): 978-1-915371-24-9

Abstract

With the development of China's financial derivatives market, China needs to pay more attention to the management of interest rate risk, and commercial banks should avoid interest rate risk typically through the role of derivatives. China's financial markets have been opened up to the rest of the world, and many international factors are influencing the changes in our financial markets. This paper focuses on the function of interest rate derivatives and their impact on commercial banks in China. This is an important step for commercial banks in China to take in order to reform and improve themselves. Using interest rate derivatives to enable banks to reduce their operational risks and to ensure the safety of China's financial system is the goal of this paper. According to the findings of the research, the adoption of interest rate derivatives can help commercial banks decrease their exposure to market risk, credit risk, and liquidity risk.

Keywords:

Financial derivatives market, interest rate risk, the role of interest rate derivatives, commercial banks, operational risks

Zhao,W. (2023). Analysis of the Impact of Interest Rate Derivatives on the Market Risk of Commercial Banks in China. Advances in Economics, Management and Political Sciences,6,420-424.
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References

[1]. Sven, 2014, A study on the motivation of the use of interest rate derivatives by commercial banks in China, Institute of Social Sciences, Shanghai Academy of Science.

[2]. Amadeo K. (2022) Financial Derivatives: Definition, Types, Risks. Available at: https://www.thebalance.com/what-are-derivatives-3305833 (Accessed: 19 July 2022).

[3]. Vaidya D. (no date) Interest Rate Derivatives. Available at: https://www.wallstreetmojo.com/interest-rate-derivatives/ (Accessed: 19 July 2022).

[4]. CFI Team (2022) Interest Rate Swap. Available at: https://corporatefinanceinstitute.com/resources/knowledge/finance/interest-rate-swap/ (Accessed: 21 July).

[5]. What is an interest rate forward curve (no date) Available at: https://www.chathamfinancial.com/insights/what-is-a-forward-curve#:~:text=Summary,settings%20for%20the%20underlying%20index (Accessed: 21 July).

[6]. Interest income to operating income ratio and interest expense to operating expense ratio of the four largest state-owned commercial banks Interest Income to Operating Income Ratio and Interest Expense to Operating Expense Ratio, 2004. https://www.shfe.com.cn/jrysp/28/3.pdf

[7]. Emerging headwinds, 2022. https://www.imf.org/en/Blogs/Articles/2022/09/21/commercial-real-estate-sector-faces-risks-as-financial-conditions-tighten.

[8]. State Administration of Foreign Exchange, 2020. People's Bank of China, Banking and Insurance Regulatory Commission, Development and Reform Commission, Ministry of Industry and Information Technology, Ministry of Finance, General Administration of Market Regulation, Securities and Exchange Commission, Guidance on Further Strengthening Financial Services for Small and Medium-sized Enterprises.

Cite this article

Zhao,W. (2023). Analysis of the Impact of Interest Rate Derivatives on the Market Risk of Commercial Banks in China. Advances in Economics, Management and Political Sciences,6,420-424.

Data availability

The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.

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About volume

Volume title: Proceedings of the 2022 International Conference on Financial Technology and Business Analysis (ICFTBA 2022), Part 2

ISBN：978-1-915371-23-2(Print) / 978-1-915371-24-9(Online)
Editor：Javier Cifuentes-Faura, Canh Thien Dang
Conference website: http://www.icftba.org
Conference date: 16 December 2022
Series: Advances in Economics, Management and Political Sciences
Volume number: Vol.6
ISSN：2754-1169(Print) / 2754-1177(Online)

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References

[1]. Sven, 2014, A study on the motivation of the use of interest rate derivatives by commercial banks in China, Institute of Social Sciences, Shanghai Academy of Science.

[2]. Amadeo K. (2022) Financial Derivatives: Definition, Types, Risks. Available at: https://www.thebalance.com/what-are-derivatives-3305833 (Accessed: 19 July 2022).

[3]. Vaidya D. (no date) Interest Rate Derivatives. Available at: https://www.wallstreetmojo.com/interest-rate-derivatives/ (Accessed: 19 July 2022).

[4]. CFI Team (2022) Interest Rate Swap. Available at: https://corporatefinanceinstitute.com/resources/knowledge/finance/interest-rate-swap/ (Accessed: 21 July).

[5]. What is an interest rate forward curve (no date) Available at: https://www.chathamfinancial.com/insights/what-is-a-forward-curve#:~:text=Summary,settings%20for%20the%20underlying%20index (Accessed: 21 July).

[6]. Interest income to operating income ratio and interest expense to operating expense ratio of the four largest state-owned commercial banks Interest Income to Operating Income Ratio and Interest Expense to Operating Expense Ratio, 2004. https://www.shfe.com.cn/jrysp/28/3.pdf

[7]. Emerging headwinds, 2022. https://www.imf.org/en/Blogs/Articles/2022/09/21/commercial-real-estate-sector-faces-risks-as-financial-conditions-tighten.

[8]. State Administration of Foreign Exchange, 2020. People's Bank of China, Banking and Insurance Regulatory Commission, Development and Reform Commission, Ministry of Industry and Information Technology, Ministry of Finance, General Administration of Market Regulation, Securities and Exchange Commission, Guidance on Further Strengthening Financial Services for Small and Medium-sized Enterprises.

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