The COSO Framework for Internal Control
February 12, 2025
Time Management is nothing but managing time well and doing the right thing at the right time. It is essential for individuals to allocate specific time slots to tasks as per their importance and urgency. Time Management plays a pivotal role not only in organizations but also in an individual’s personal life. Students aspiring for […]
The developed countries are identified by certain parameters like highly developed economy, greater technical infrastructure, high GDP and net income per capita, level of industrialization and also the standard of living of the people. Development and modernization of a state has an obvious and significant impact on its politics, culture and society. Subsequently, these changes […]
It is essential for every individual to behave in a socially acceptable way. Etiquette refers to good manners which help an individual leave his mark in the society. An individual must know how to behave at the workplace. There is a huge difference between college and professional life. One needs to be disciplined at the […]
Have you ever wondered how companies like Google, Facebook, Apple and Twitter reached their current status in just few years? How these companies manage to remain at the forefront of competition? What about them makes them stand apart from the rest? And why is it that they emerge out successfully amidst uncertainty and rapidly changing […]
As a key strategic function, HR can facilitate teams for High-Performance and achieving superior quality benchmarks at work. The Human Resource department in any organization play a key role in driving employee-centric functions and motivate the teams by driving various functions strategically. The key amongst them include recruiting the right talent pool, competence building and […]
Credit derivatives are the most important financial innovation in the field of credit risk management. These derivative instruments have been created quite recently. They have only been traded for a couple of decades as compared to other instruments like stocks and bonds which have been around for centuries. Within this short period of time, credit derivatives have made a mark for themselves. Today, there is a thriving market for these financial instruments across the world. This is despite the fact that many credit derivatives faced very bad publicity during the 2008 crisis.
In this article, we will have a closer look at what credit derivatives are and how they have transformed the field of credit risk management.
For many years, credit risk was illiquid and untradeable. However, this became a problem as it started deterring people from making investments. This is because there are different people in the market who have varying levels of risk tolerance.
During the lifecycle of debt, it is quite possible that its risk profile may increase and it may no longer be palatable to another firm. Hence, there is a need to have a vibrant and liquid market where people with different underlying risk profiles can trade. This is what is provided by credit derivatives. Since these derivatives fill a latent need, they are sought after by many people in the market.
Some of the underlying benefits of credit derivatives that make them lucrative for investors have been listed below:
There are several benefits to buying credit derivatives. However, there are certain problems as well. They have been listed below:
The bottom line is that credit derivatives are very useful products. They can perform many functions and save organizations some money as well. However, one has to be careful while trading in credit derivatives since the market is unregulated in many parts of the world. This means that the counterparty should be carefully chosen to ensure that the insurance coverage provided is effective and adequate.
Your email address will not be published. Required fields are marked *