Ambank Applied Hedging Strategy Essay

3.0 Methodology Ambank applied hedging strategy in the company. They applied hedging strategy using future. According to Ambank (2014), their Stock Broking offer securities and futures trading services to their customers in both Malaysian futures market and some of the major foreign future markets. Ambank had also provides investors a series of investment and hedging instruments according to investors’ risk profiles. Futures Smirlock (n.d.) stated that bank often offers floating rate loan, however this kind of loan might consists higher risk as they do not eliminate interest rate risk. This might causes the risk to transfer from the lender to the borrower, which might cause severe problem for the bank itself. Since floating rate loan fluctuate

One of the modern method that used to minimize the interest rate is by implementing short term interest rate future contacts (STIRS) (Beets, 2004). Future contracts are one of the most common derivatives used to hedge the risk. A future contract is an arrangement between two parties to buy or sell an asset at a particular period for specific pre-agree price. The main purpose that firms use future contracts is to offsets their risk exposures and limit themselves from changing in price. An interest rate future is a futures contract with an underlying instrument that pays interest. An interest rate future is a contract between the buyer and seller agreeing to the future delivery of any interest-bearing asset. The interest rate future allows the buyer and seller to lock in the price of the interest-bearing asset for a future date. There are two types of future contracts in order to reduce the interest rate risk which is long term and short term. Smirlock (n.d.) stated that to hedge the interest rate risk in making the fixed rate loans, the interest rate futures offers the bank with low-cost method. Interest rate future contract is a kind of promise between two parties in order to exchange for a financial instrument with the agree price and place the delivery in the future. It allow banks to focus more on their futures trading in

Future contracts can be very useful in eliminating the risk in the business. The main advantages of participating in a future contract helps to remove the uncertainty of the future price of an item as both party agree to lock the price today and deliver the transaction in future. Thus, Ambank able to reduce the ambiguity having to do with expected expenses and profits. In addition, they might able to reach their ultimate goal which is raising the profit as customers are attracted by their lower risk option of