Corporate Uses of Credit Derivatives

Wee, Teresa (2006) Corporate Uses of Credit Derivatives. [Dissertation (University of Nottingham only)] (Unpublished)

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Corporate use of derivatives is not something that is new today. Firms often make use of them to do risk management when they have exposures to interest rate and exchange rate risks in the course of running their business. More recently, the use of credit derivatives to manage credit risks has also become one option that firms use. However, the usage of this option has been less frequently utilised largely due to the lack of understanding of credit derivatives by corporate firms. Firms have chosen more traditional but not always convenient methods, such as insurance and letters of credit to manage their credit exposure.

Nevertheless, the growth in the credit derivatives market is expected to continue as investors become more familiar with it, coupled with a better understanding of the possible benefits of this instrument. This should accelerate the development of the market and attract a greater number of market participants, resulting in better market liquidity. Currently, market players are mainly large banks, insurance companies, and hedge funds with non-financial firms taking tentative steps towards this product area as well. This perhaps adds another dimension into the credit derivatives market. Not only does the industry have to deal with the concerns of the exponential growth of this product in the financial market, it will also have to look at how the role of credit derivatives might impact corporate firms, the market and the possible backlash that can arise.

In this paper, we will explore this new dimension and report back with the findings.

Item Type: Dissertation (University of Nottingham only)
Depositing User: EP, Services
Date Deposited: 15 Nov 2006
Last Modified: 22 Oct 2016 12:47

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