Hedging the Interest Rate Risk: The Exim Bank's Way

Maram Srikanth, Chetan G K, Swamy Perumandla

Product #:W48456

Supplier:Ivey

Discipline:Finance

Setting:India, 2025

Details:Exercise (PDF) • 10 pages • 2026-04-28

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On a chilly November morning in Mumbai in 2025, Joseph Samuel, head of treasury at the Export-Import Bank of India (Exim Bank), confronted a strategic challenge. He had recently secured a whopping US$2.27 billion fixed-rate bond issuance, the largest ever in the bank’s history. Now Samuel was confronted with rising global interest rate volatility amid uncertain monetary policy shifts, notably influenced by the political climate in the United States. Should Exim Bank stick to its fixed-rate exposure and enjoy predictable funding costs? Or was it time to consider an interest rate swap (IRS), a financial hedge that could align the bank’s liabilities with its floating-rate assets, but at the cost of complexity and volatility?

Learning Objectives

This case fits well in courses on derivatives and risk management, treasury management, and international finance for both undergraduate and master of business administration programs. It is ideal to deliberate on how FIs manage interest rate risk, evaluate the IRS, and address asset–liability mismatches in cross-border financing. The case is also suitable for executive training programs for banking and finance professionals, particularly those working in treasury, risk management, and corporate and international banking, both at middle-management and senior-leadership levels. After working through the case and assignment questions, students will be able to do the following:

Identify the key risks in cross-border financing, especially with regard to foreign currency loans.
Evaluate the strategic implications of entering into an IRS deal.
Understand the differences between IRS and currency swap.
Identify asset–liability mismatches arising from fixed-rate borrowings and floating-rate lending.
Conduct scenario analysis based on movements in secured overnight financing rate (SOFR), loan foreclosure, partial deployment of funds, and borrower-related risks.
Calculate payoff profiles for both the bank and the swap maker using a net present value (NPV) approach.

Hedging the Interest Rate Risk: The Exim Bank's Way

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Learning Objectives