Interest rate risk is included in the larger category of market risk,
             to which a bank, like any financial institution, is subject to. A move in
             any such risk can result in profit or loss for the bank, but here we are
             interested in the loss part, correlated with risk.
             As taken from the glossary on the Internet, interest rate risk can be
             defined as "the possibility of a reduction in the value of a security,
             especially a bond, resulting from a rise in interest rates". However, in
             the case of a bank, this definition can be somewhat diversified and there
             are two aspects that we have to deal with. First, we may consider a
             portfolio of diversified assets, including bonds that the bank, as a player
             on the financial market owns. As a security, these bonds have a two-faced
             value, one given by there face value and another given by their coupon. If
             the interest rates on the market rise, than the bank that owns the
             portfolio of bonds will suffer a loss, because the earnings it will make
             from its portfolio will decrease (we are referring here to the simple case
             of a fixed-coupon bond. If we take into consideration more complicated
             forms of bonds, including bonds of variable coupon, that this no longer
             stands ground). The loss will occur from the fact that it has lend money
             (that is, it has bought bonds) bringing a revenue that is lower than the
             one current on the market. Thus, if the bank had bought the bonds at the
             current time, it will have made a bigger profit. Let's take the following
             example: a bank owns in its portfolio bonds with a 10 % coupon. These will
             bring a, let's say, $1,000,000 profit. If the interest rate goes up by 1
             %, then the bank could have made a $1,100,000 profit from its coupons,
             however, having already bought the 10 % bonds, it will only make the
             To counterbalance this risk, banks such as HSBC use a somewhat new
             concept (used from the 90s an...