Reducing Interest Rate Risk. Banks could reduce interest rate risk by matching the terms of its interest rate sensitive assets to it liabilities, but this would reduce profits. It could also make long-term loans based on a floating rate, but many borrowers demand a fixed rate to lower their own risks. To undertake a quantitative assessment of the interest rate risk faced by commercial banks in Kenya. 2. To establish the relationship between interest rate sensitivit y gap and market interest rates. Interest rate swaps are not widely understood, but they are a useful tool for hedging against high variable interest rate risk. For both existing and anticipated loans, an interest rate swap has several strategic benefits as well. But, to make smart use of an interest rate swap, it helps to understand how a swap works. Talk to your bank to