Managing currency and interest rate risks The events during the crises have compelled banks and corporates to start taking a broader, more sophisticated approach to analyzing their risk exposures. These events have forced banks and corporates to go back to the first principles of risk management and that is of identifying risks, measuring them and managing them.
Prior to the crisis, a prolonged period of stable financial markets, incentivized banks and corporates alike to take on more and more risks on their balance sheets. A one way trend in currency rates prompted corporates to leave their foreign exchange exposures to generate profits if the currency moved favourably. Low and stable interest rates acted as incentives for increasing leverage.