The Bank of Western Australia, with over AUD20 billion (USD10 billion) in assets, plans to expand its use of interest-rate derivatives to include overnight index swaps, according to Clinton Ellison, an interest-rate derivatives dealer in Perth. In overnight swaps the swap rate is determined daily by brokers and the payments are compounded over the life of the swap and made at the contract's maturity. Ellison said he is expecting senior management to approve the expansion in the coming months. The bank currently uses interest-rate swaps, options and forward-rate agreements.
"It's a more efficient hedge," said Ellison, noting that it would likely be purchased for its liability portfolio and would be another instrument in the bank's repertoire. For example BankWest could use an overnight index swap to hedge a one-year liability rather than buying several forward-rate agreements. "We can hedge it all at once," he added.
