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Risk Mgmt Mod 7.

Risk Mgmt Mod 7.

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Published by: umeshgovindappa1 on Feb 05, 2010
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07/12/2013

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11 July 2013 PROF. D GOPINATH 1
CREDIT RISK AND DERIVATIVES
CREDIT DERIVATIVES ARE THE FINANCIALINSTRUMENTS DESIGNED TO TRANSFER THE CREDIT RISK OF ONE COUNTERPARTTO ANOTHER.CREDIT RISK ARISES MAIN-LY DUE TO THE DEFAULT OF THE DEBT-OR OR DUE TO THE DETERIORATION OFTHE CREDIT QUALITY OF THE DEBTOR.DUE TO THE INCIDENCE OF SUCH RISK THE CREDITOR CAN ONLY RECEIVE THE AMOUNT THAT THE DEBTOR PROVIDES.
 
11 July 2013 PROF. D GOPINATH 2
CREDIT RISK AND DERIVATIVES
IT IS RELATED TO THE OFFSETTING OFCREDIT RISK TO BE INCURRED IN A FIRM. THE CONCEPT OF DERIVATIVE ISTO CREATE A CONTRACT THAT DERIVESFROM AN ORIGINAL CONTRACT OR  ASSET.A CREDIT DERIVATIVE IS A CONTRACT THAT INVOLVES A CONTRACTBETWEEN PARTIES IN RELATION TO A RETURN FROM THE CREDIT ASSET.WITHOUT TRANSFERRING THE ASSET.
 
11 July 2013 PROF. D GOPINATH 3
CREDIT DERIVATIVES
THERE ARE SUCH INSTRUMENTS WHICHTRANSFER EITHER SPECIFIC OR ALL THEINHERENT RISKS OF A CREDIT POSITIONFROM ONE PARTY TO THE OTHER.HERETHE RISK SELLER TRANSFERSITS RISK TO THE RISK BUYER AGAINST PAYMENTOF A PREMIUM. THESE CONTRACTS AREPRIVATE AND CONFIDENTIAL WHICH ALLOW THE USER TO MANAGE THEIR EXPOSURE TO CREDIT RISK.

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