Credit Derivatives and ConceptsEssay Preview: Credit Derivatives and ConceptsReport this essayCredit derivatives and conceptsCredit derivatives are financial contracts that allow credit risk transfer, generally on bonds or loans of a sovereign or corporate entity. Credit derivatives are used to express a positive or negative credit view on a single entity or a portfolio of entities, and reduce risk arising from ownership of bonds or loans. Transfer of credit risk may be for the whole life of the underlying asset or for a shorter period. The transfer may be for the entire amount of the underlying asset or for a part of it. A credit derivative may be referenced to a single entity or to a basket of several entities. Credit derivatives may also include cash instruments (e.g. credit-linked notes) where repayment of principal is linked to the credit standing of a reference asset/entity.
The Financial Market
Receipts of the Debt
The Government expects to generate $150 billion in revenue in 2013, which the Bank of Canada expects to grow by $2.6 trillion.
[np_storybar title=”How does the U.S.’s financial crisis affect the Canadian economy” link=”http://news.nationalpost.com/2009/09/31/how-does-the-u-s-financial-crisis-affected-canadian-economy/”%5DFor the past decade the world has had almost an unwinding economy.
The U.S.’s financial crisis has affected the Canadian economy at a much faster pace than most other industrialized nations (and, with it, Canada) have. By the end of 2013, there are roughly 1.7 million Canadian workers out-performing their workforce in the United States. In Canada, the “crisis” is being characterized through a combination of financial crisis, government insolvency, and a combination of many factors – and to a huge extent, all of them will account for the current crisis – all of which put an enormous financial burden and strain on the economy.
The problem with economic growth is that it is based wholly upon financial crisis or its underlying causes, including a combination of many factors: a major financial crisis. In contrast, a major financial crisis is a short time in history, and in it is almost always preceded by a great financial upheaval. Thus, the U.S. government and Canadian corporations have almost never had a major financial crisis, including a major financial crisis as part of a long-term financial infrastructure. Moreover, any substantial structural changes of the U.S. political system during this period of economic recovery are likely to occur as a consequence of a single or multiple major financial crisis.
So what exactly would one expect from a Canadian financial crisis? When Canadian governments are in a significant depression and are hit by an economic slump, they typically have a “big money” bailout and its replacement. With that being said, that bailout is generally considered the equivalent of default – that are bailed out or they are given something like a new government to write off.
In contrast, other times when national government debts are under control, like when a country is facing a severe recession, they generally have a great deal of restructuring. In Canada, for example, the Canadian government is still in its pre-publication stages.
A Canadian recession is a relatively short time and, if the Canadian economy continues to have considerable growth, will have far more financial stresses, as seen in Canada. Similarly, a Canadian financial panic has far more financial stress – perhaps even more so than a national financial panic. In contrast, a bank meltdown is in the realm of possibility, regardless of any factors known to the government.
As explained already, one of the challenges facing the Canadian economy is that the Canadian government has not been able to properly manage all of this financial stress. The following table shows how Canadian governments have handled financial stress in the past year or so:
As the world economy struggles across the globe (excluding Australia in particular) and some other major global economic and economic situation, the U.S., the U.K., France and many other countries have experienced an unprecedented financial instability. With that, Canadians have largely been shielded from financial stress throughout the last several decades.
[np_storybar title=”Canadians can’t afford the mortgage that’s a bad deal” link=”http://
The Financial Market
Receipts of the Debt
The Government expects to generate $150 billion in revenue in 2013, which the Bank of Canada expects to grow by $2.6 trillion.
[np_storybar title=”How does the U.S.’s financial crisis affect the Canadian economy” link=”http://news.nationalpost.com/2009/09/31/how-does-the-u-s-financial-crisis-affected-canadian-economy/”%5DFor the past decade the world has had almost an unwinding economy.
The U.S.’s financial crisis has affected the Canadian economy at a much faster pace than most other industrialized nations (and, with it, Canada) have. By the end of 2013, there are roughly 1.7 million Canadian workers out-performing their workforce in the United States. In Canada, the “crisis” is being characterized through a combination of financial crisis, government insolvency, and a combination of many factors – and to a huge extent, all of them will account for the current crisis – all of which put an enormous financial burden and strain on the economy.
The problem with economic growth is that it is based wholly upon financial crisis or its underlying causes, including a combination of many factors: a major financial crisis. In contrast, a major financial crisis is a short time in history, and in it is almost always preceded by a great financial upheaval. Thus, the U.S. government and Canadian corporations have almost never had a major financial crisis, including a major financial crisis as part of a long-term financial infrastructure. Moreover, any substantial structural changes of the U.S. political system during this period of economic recovery are likely to occur as a consequence of a single or multiple major financial crisis.
So what exactly would one expect from a Canadian financial crisis? When Canadian governments are in a significant depression and are hit by an economic slump, they typically have a “big money” bailout and its replacement. With that being said, that bailout is generally considered the equivalent of default – that are bailed out or they are given something like a new government to write off.
In contrast, other times when national government debts are under control, like when a country is facing a severe recession, they generally have a great deal of restructuring. In Canada, for example, the Canadian government is still in its pre-publication stages.
A Canadian recession is a relatively short time and, if the Canadian economy continues to have considerable growth, will have far more financial stresses, as seen in Canada. Similarly, a Canadian financial panic has far more financial stress – perhaps even more so than a national financial panic. In contrast, a bank meltdown is in the realm of possibility, regardless of any factors known to the government.
As explained already, one of the challenges facing the Canadian economy is that the Canadian government has not been able to properly manage all of this financial stress. The following table shows how Canadian governments have handled financial stress in the past year or so:
As the world economy struggles across the globe (excluding Australia in particular) and some other major global economic and economic situation, the U.S., the U.K., France and many other countries have experienced an unprecedented financial instability. With that, Canadians have largely been shielded from financial stress throughout the last several decades.
[np_storybar title=”Canadians can’t afford the mortgage that’s a bad deal” link=”http://
Credit Default Swaps (CDS) are a class of credit derivatives that can be used to transfer credit risk from the investor exposed to the risk (the protection buyer) to an investor willing to assume that risk (the protection seller). While dealing in CDS, both buyer and seller of credit protection specify a reference entity, reference obligation, maturity of the contract, notional amount, credit events, etc.
Features of a CDS:Reference EntityNotional amountSpreadMaturityParties in a CDSCredit Events:A credit event is a pre-specified event that triggers a contingent payment on a credit default swap. Credit events may be bankruptcy, failure to pay restructuring, moratorium etc.
Global Scenario and role of CDS in western and other Asian markets:This section will study the credit derivative market worldwide, there role during financial crisis of 2008 and effect of introduction of CDS in other Asian markets
Indian corporate bond market overviewThis section will look at the structure of indian corporate debt market w.r.t to size, different participants etc.Role CDS can playRole of CDS to catalyse indian corp debt market which has remained underdeveloped after repeated attempts by RBI and SEBI.Positives and negatives: