When managing interest rate risk, there are two key measures:
➡ Net Interest Income (NII) – This is like the money you make from driving your taxi. It is short-term cash flow—the revenue you see in your P&L.
➡ Economic Value of Equity (EVE) – This is like the actual value of your car. It represents the long-term impact of interest rate changes on your balance sheet.

But what about risk? If you crash your car, the value plummets.

That is why hedging is like car insurance—you might not always need it, but if something goes wrong (like a sudden rate shock), you will be glad you had it.

In this video, I break down EVE vs. NII using my taxi analogy—making complex banking concepts easier to understand.