This JavaScript enables OnlineOpinion, a method for collecting secure feedback data.
Contact Us
Edwin A. Martinez
216-222-9646
edwin.martinez@pnc.com
Feedback
Replay Video
Replay Video

Want to learn more? Check out the following content.

Interest Rate Derivatives

Interest rate derivatives can help you mitigate the risk of unpredictable interest rate swings and ensure that more of each revenue dollar drops to the bottom line. Edwin Martinez, Managing Director in PNC's Derivative Products Group, discusses derivative strategies and how to actively manage risk.

« Return to Feature


Interest Rate Derivatives

Manage risk and maximize value

Over the past year and a half, we have seen dramatic evidence of the damage that excessive or unmanaged risk can do to businesses and the economy. Yet taking on risk is unavoidable if you want to grow your business and improve your bottom line.

I’m Edwin Martinez, Managing Director in PNC’s Derivative Products Group.

The answer to this dilemma is to address and actively manage the risks you can control to maximize the value of your business.

Interest rate derivatives can help you mitigate the risk of unpredictable interest rate swings. By adding certainty around this expense category on your income statement at a time when improving margins is critical, you can ensure that more of each revenue dollar drops to the bottom line.

Yet you may be hesitant about this strategy because interest rate derivatives, like interest rate swaps, appear too complex and their benefits may seem unclear. In some cases you may be taking advantage of the simplest kinds of swaps when a more sophisticated approach would serve you better or would be more consistent with your outlook on interest rates in general.

Let’s take a high level view of how interest rate swaps work and then discuss a more targeted strategy.

Interest rate swaps are contractual agreements between the bank—and a client like you—who agree to exchange different forms of interest payments through a stated maturity date. In one of the most popular versions, they effectively convert a floating rate on a loan to a fixed rate.

To visualize how an interest rate swap works, take the situation of the floating rate borrower who feels that rates will rise over the term of a loan, significantly increasing interest costs and potentially eroding already strained operating margins.

This client enters into a swap agreement with the bank, whereby the client receives a floating rate, such as LIBOR, that offsets the interest on its underlying loan agreement and pays a fixed rate.

The payment of LIBOR from the bank to the client offsets the client’s LIBOR payment to the lender. After the LIBOR payments cancel each other out, the client is left with an effective all-in fixed rate consisting of the swap rate plus the spread over LIBOR.

While this approach is common, there are many variations of interest rate derivatives you might want to consider, depending on your current debt structure and your outlook on interest rates. Let’s discuss one in more detail.

If you believe that rates will remain low for the near term and would like to take advantage of the floating rate environment while still protecting against too much risk, you may want to consider an Interest Rate Cap.

Interest rate caps provide protection should rates rise above a pre-specified rate, offering essentially an insurance policy against a large or unacceptable increase. As a client, you choose the acceptable level of risk by choosing a strike rate that corresponds to a manageable worst-case scenario.

In this scenario, companies can actively manage their interest rate exposure within their acceptable risk threshold rather than eliminating it entirely.

In addition to managing risk and ultimately increasing business value, derivatives like interest rate swaps and caps deliver other benefits, including flexible terms. You can also customize derivative structures to meet your timing and cost needs.

You can choose the index you want to base the derivative on. Derivatives can be structured based on various indices such as Prime, Commercial Paper, Fed Funds, SIFMA and others, as well as LIBOR.

A derivative can be terminated at its market value at any time.

And a derivative is entirely separate from the underlying credit agreement. Derivatives such as interest rate swaps and caps are powerful risk management tools that can help you create value in your business. Other strategies that you may want to consider include floors, collars and swaptions.

I hope you will explore this topic further by getting in touch. My contact information appears on the previous page.

Thank you for your time and attention.


 
Additional Assets There are no upcoming events. Please check back soon.
Title Description Subject Area
Managing Interest Rate RiskManaging Interest Rate Risk in an Age of Uncertainty
With a watershed election just around the corner and national and international markets more unpredictable than ever, managing interest rate risk requires both insight and informed strategies. Join us as Tina Hwang, Senior Vice President and Managing Director, and Todd English, Director, with PNC’s Capital Markets Derivative Products group discuss:• Current market conditions• How regulatory reform might affect your business• Managing risk in a low interest rate environment
Mitigate RiskLearn More »
A Changing ChinaAdvantages of doing business in the local Chinese currency.
If you are doing business in China, the recent liberalization of its currency can have substantial benefits for you. It’s easier to make and receive payments and there are more tools for managing currency risk.
Mitigate RiskLearn More »
Doing Business in ChinaDoing Business in China
When you take on the substantial risks and rewards of doing business with China, you need to avoid the wrong strategy, the wrong partner, and poor management. You can accomplish this by focusing on China’s economic structure, business environment and culture.
Mitigate RiskLearn More »
Cyber and Fraud RiskProtecting Your Enterprise from Cyber Fraud
Just as the financial marketplace is driving to faster and more anonymous transactions, fraudsters are increasingly using old-fashioned methods to collect tid-bits of financial information that can enable them to compromise your accounts. Corporations both large and small as well as government entities, school districts and individuals are vulnerable.
Mitigate RiskLearn More »
Steps for better business resiliencyBe prepared: Steps for better business resiliency
Business resiliency plans ensure uninterrupted processing for essential functions.  Most business interruptions fall into one or more of these 5 categories: hardware, facilities, network/telecom, software and people.  With a strong business resiliency plan, you can be prepared and avoid the difficulties of recovery without one.  
Mitigate RiskLearn More »
FX policies and best practicesImproving your foreign exchange policies and practices.
As companies increase engagement with international trading partners and markets remain unpredictable, they must develop and adopt effective foreign exchange risk strategies. This webinar will cover why you need an FX policy, elements of an effective policy, forecasting, budgeting and planning and considerations for the period between trade execution and maturity.
Mitigate RiskLearn More »
Interest Rate RiskManaging interest rate risk in a volatile environment
With interest rates at all-time lows, some companies may have been lulled into a false sense of security about interest rate risk. However, the intermediate and long end of the yield curve has been trending up dramatically. Companies can utilize financial models to inform their decision around  hedging a portion of their projected debt portfolio for longer durations.
Mitigate RiskLearn More »
Strategies for Addressing Volatile MarketsForeign exchange strategies
Mitigate RiskRead Now »
Redefining RetirementFresh look at 401(k) plan accounts
Mitigate RiskRead Now »
Maximizing M&A OpportunitiesMaximizing Opportunities in the Current M&A Market
The strength of the current M&A market offers significant opportunities for liquidity and growth. What are the implications for your company? This presentation will include: •An update on conditions in the M&A market•How you can prepare for a sale Join us as Bill Watkins and Greg Creamer, Harris Williams & Co. provide the information you need to plan for success environment and answer your questions.
Mitigate RiskLearn More »
Developing Investment StrategiesDeveloping investment strategies
In an effort to deal with the turmoil of the past few years, many companies invested and deployed excess cash so cautiously that their strategy may be counterproductive as the economy improves. These companies now recognize the importance of having a deliberate and well-thought out investment policy that provides clear direction on how investments will be managed and how much risk is acceptable.
Mitigate RiskRead Now »
India UpdateInsight into the Indian economy
PNC’s economic team notes that the Indian Composite Leading Index is signaling a coming contraction in industrial production. Central bankers’ concerns can only be shifting from inflation to growth.
Mitigate RiskRead Now »
Lifecycle of a Currency HedgeBest practices for currency hedging in a volatile market.
It can be difficult to predict the short- and long-term effects of monetary and fiscal policies on currencies. As a result, more companies are hedging foreign exchange risk and others are improving their strategies. Both can benefit from this overview of the hedging process.
Mitigate RiskLearn More »
Capital ExpenditureCapital Expenditures
Over the past few years, many companies have minimized or frozen spending and investments. However, the pressure to stay competitive in the global marketplace makes it unrealistic to hold off on technology and operations improvements for the long term. For many, it’s time to determine what initial investments make the most strategic sense and how to finance them. We take a look at some creative approaches.
Mitigate RiskRead Now »
Interest Rate DerivativesInterest Rate Derivatives
Taking on risk is unavoidable if you want to grow your business.But you need to addressand manage the risks you can control.Interest rate derivatives can help you mitigate the risk of unpredictable interest rate swings. By adding certainty around this expense category on your income statement at a time when improving margins is critical, you can ensure that more of each revenue dollar drops to the bottom line.
Mitigate RiskRead Now »
Opportunities AbroadExport basics
In spite of the impression that US exports are not competitive, are shrinking or hamstrung by protectionism, the US remains a major player, with enormous untapped potential.  The U.S. remains the third largest exporter of goods in the world. And when you add in services, the picture gets even better. Still, many companies are reluctant to explore the international market, even though 95% of the world’s consumers are beyond our borders.
Mitigate RiskRead Now »
China SmartKeys to Success
According to the Office of the US Trade Representative, China was the United States' third largest goods export market in 2009, the most recent year for which statistics are available. U.S. goods exports to China that year were $69.6 billion. Quoted in China Daily, (March 14, 2011) Chinese Commerce Minister Chen said that exports will continue to rise in 2011. Here are some tips on taking advantage of that growth.
Mitigate RiskRead Now »
Corporate Identity TheftOnline security
Business account takeovers continue to grow as criminals increase the number of attacks with more sophisticated malicious software.  The Internet Crime Complaint Center reports that losses due to online fraud consistently total more than half a billion dollars a year. And they continue to increase.  Still, too many businesses feel that online fraud can’t happen to them.
Mitigate RiskRead Now »
Credit for the Middle Market Banking relationships
Some managers who find themselves in challenging circumstances may be reluctant to talk with their bankers, fearing that relaying bad news might close off credit options. Successful companies are open and transparent with their banks, through good times and bad.
Mitigate RiskRead Now »
New issues in wealth managementRetirement planning
Are you spending most of your time thinking about your company’s bottom line while paying little attention to your own financial future? As your success grows and your circumstances become more complicated, taking care of your personal financial affairs can be even more complex than handling a demanding career. Whatever your idea of retirement, it’s important to be specific about how you’ll spend your time.
Mitigate RiskRead Now »
Financial Regulatory Reform UpdateHow will regulatory reform affect your business?
The many financial regulatory initiatives underway today, including Basel III and the Dodd-Frank Act, have the potential to substantially impact financial services firms, the function of the capital markets, and business activity overall. The fact that these efforts conflict with each other adds to the uncertainty companies are facing. Find out how these new bank regulations could impact your access to capital and liquidity.
Mitigate RiskLearn More »
Retirement in the New Normal Economy401(k) advice and management
Americans’ confidence in their ability to afford a comfortable retirement has plunged to a record low. 401K and other retirement plan participants are looking for online solutions to get their retirement savings back on track. Plan sponsors should be aware that professional participant advice and professional management can help.
Mitigate RiskLearn More »
Managing the UnexpectedInvestment policy development
In an effort to deal with the turmoil of the past few years, many companies deployed excess cash so cautiously that their strategy may be counterproductive as the economy improves. Michael Houlihan, assistant vice president, corporate deposits and liquidity, discusses the framework for a good investment policy and insight into today’s investment options.
Mitigate RiskLearn More »
Today's Interest Rate Derivatives Interest rate derivatives
Current events, both seismic and political, have resulted in unprecedented volatility in the interest rate markets. Join PNC's Senior Vice Presidents Hans Hurdle and Howard Sakin as they review long- and short-term interest rate trends and the conditions that drive them as well as successful strategies for dealing with interest rate risk.
Mitigate RiskLearn More »
FX Hedging in a Volatile MarketCurrency and risk mitigation for international businesses
If you are involved in international business as an importer, exporter or multinational, your head must be spinning. Paul Toth, Managing Director, PNC’s Foreign Exchange Group, outlines currency issues and suggests ways to mitigate risk.
Mitigate RiskLearn More »
Obtaining Credit in Uncertain TimesYour banking relationship
Even in uncertain times, credit is available with competitive pricing and terms for companies that regard their bank as a vital resource. Here are tips for keeping an open relationship with your banker.
Mitigate RiskLearn More »
What's ahead for M&A in 2011?Mergers and acquisitions
A new window of opportunity has emerged for business owners. Corporations with cash on their balance sheets are hungry for quality acquisitions, private equity groups have come off the sidelines, and debt availability has returned. Find out what made businesses resilient to shifts in the economy, what's ahead for 2011 and what it means for your business.
Mitigate RiskLearn More »
Fighting Online FraudProtecting your business from cyber criminals
Just how worried should you be about online fraud? Corporate account takeovers continue to grow as criminals increase the number of attacks and the sophistication of their malicious software. But too many businesses feel that online fraud can’t happen to them. The truth is that cyber criminals increasingly target business computers in order to facilitate theft. Mele gives tips and tactics for protecting your business.
Mitigate RiskLearn More »
With M&A, Timing is EverythingM&A checklists for buyers and sellers
M&A volume has begun to pick up and debt financing markets have rebounded. In this environment, your company may be well-positioned to benefit from M&A activity. Are you ready to participate? Bill Watkins, co-head of business development for Harris Williams, provides checklists for buyers and sellers.
Mitigate RiskLearn More »
Getting paid for international salesInternational payments and risk mitigation
Do you know the safest ways to get paid for an international sale? The U.S. Commercial Service & PNC Bank help with our "Making Exporting Easier" web-based seminar that outlines the common international methods of payment used in global trade and risk mitigation tools.
Mitigate RiskLearn More »
Rolling FX Hedges for Global RisksTailoring rolling FX hedges
Rolling FX Hedges can be tailored to match your company's cash flow needs and adjust for risk, enabling your company to compete in a changing business environment.  Garry Duncan, Managing Director in PNC's Foreign Exchange Group, outlines how these can be a viable option.
Mitigate RiskLearn More »
Leverage Your Banking RelationshipBanking relationships for the middle market
By fully leveraging their banking relationships, middle market companies can be better prepared to manage risk and take advantage of opportunities.  In this video, we'll explore how.
Mitigate RiskLearn More »
401(k) Plans Still Viable401(k) plans
While it's true that the recession has affected 401(k) plans, they can still be a viable retirement program if plan participants have access to the information they need. Bonnie Fawcett, PNC's Director of the 401(k) Bundled Plan program, offers employers some suggestions on how to engage their employees.
Mitigate RiskLearn More »
NAFTA SmartInternational treasury management 
Canada and Mexico provide tremendous business opportunities for U.S. companies that want to grow.  However, there are still some unique challenges that need to be addressed. George Hoffman, Senior Vice President of PNC's Global Treasury Management Group, reviews some of the differences in banking services, regulations and market risks that could affect your bottom line.
Mitigate RiskLearn More »
Hedge Interest Rate RiskInterest rate hedges
Did you know that it's possible to hedge the interest rate risk today for debt that your company plans to issue in the future?  The ability to manage future interest rate risk is particularly important in today's economic environment when rates are near all-time lows and will likely rise in the coming months.
Mitigate RiskLearn More »
NACHA Rule ChangesThe  new IAT code
The National Automated Clearing House Association (NACHA), the organization that governs the ACH network, has developed a new transaction type in order to identify ACH entries that involve foreign financial agencies. If you're an ACH originator, you'll want to familiarize yourself with the rule change and how it may impact your company or organization.
Mitigate RiskLearn More »
Are you ready to retire as planned?Fifth Wealth and Values Survey results
The concept of retirement can seem daunting even in the best of times. Given the current economic turmoil, you may be questioning your ability to retire as planned and wondering if you'll be able to support the lifestyle you've imagined. Responses to PNC's fifth annual Wealth & Values Survey indicate that you're not alone. Tom Crowley of PNC Wealth Management highlights a few of the more surprising survey results and offers some tips on how you can start to plan for retirement.
Mitigate RiskLearn More »
Currency Issues and Risk MitigationForeign exchange hedging
Historic fluctuations in the value of the US dollar relative to other currencies has caused many companies to be wary of doing business in international markets. For companies with foreign receivables that need to be converted or assets or liabilities that need to be translated into US dollars, the challenge to manage those exposures can be daunting.
Mitigate RiskLearn More »
Online Banking Fraud PreventionOnline fraud checklist
While banks are required by federal guidelines to continually enhance online security, there are a number of steps that you can take to help protect your company from fraud.
Mitigate RiskLearn More »
Check Fraud PreventionStrategies to reduce check fraud.
A staggering number of companies experience attempted or actual payment fraud, with the majority of incidents related to checks. Regardless of your company's size or industry, there are a variety of strategies, services and technologies available today to help reduce your company's risk of check fraud.
Mitigate RiskLearn More »
Succession PlanningResults of fourth Wealth and Values  Survey
Results of PNC Wealth Management’s fourth annual Wealth and Values Survey showed that while 77% of business owners say that they have wills, only 33% indicated they had a business succession plan. The impact of not having a business succession plan could be disastrous to a business owner’s family and to the operation of the business.
Mitigate RiskLearn More »

The materials or video that you are going to view were prepared for general information purposes only and are not intended as legal, tax or accounting advice or as recommendations to engage in any specific transaction, including with respect to any securities of PNC, and do not purport to be comprehensive. Under no circumstances should any information contained in those materials or video be used or considered as an offer or commitment, or a solicitation of an offer or commitment to participate in any particular transaction or strategy. Any reliance upon any such information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other advisor regarding your specific situation. Any opinions expressed in those materials or videos are subject to change without notice.

PNC is a registered mark of The PNC Financial Services Group, Inc. ("PNC")
©2013 The PNC Financial Services Group, Inc. All rights reserved.

General Disclosure

Site Map