What is a Credit Instrument?

Credit derivatives allow companies to trade credit risk in the same way as exchange rate or interest rate risk. Previously, once a bank lends out, it can only stand by and pray for peace. Now it can proactively manage its own credit risk portfolio. Banks can choose to retain some risks and purchase insurance for others.

Credit derivatives

Credit Derivatives are derivatives that have grown rapidly in recent years. Credit derivatives are defined as:

As a commercial bank, its business is basically to make money deposits and loans and earn money from them.

There are many types of credit derivatives, the most important of which are the following:

CDS (Credit Default SWAP)

A credit default swap is a bilateral financial contract in which a credit protection buyer pays a fee or

Credit derivatives are priced differently for different instruments. Generally, the pricing of credit derivatives is called

Generally, credit derivatives have the following risk factors.

Opaque market

As mentioned earlier, the operation of credit derivatives and

According to the 2003/4 Annual Report of the British Bankers' Association, although credit derivatives have a very small market share compared to the entire derivatives market, their market has experienced a Explosive growth. Its transaction value increased from one hundred and eight trillion dollars in 1997 to three hundred and forty-eight trillion dollars in 2003, a 20-fold increase. It is estimated that by 2006, its market size could reach US $ 8,206 trillion, while the Asia-Pacific market currently only accounts for about 10% of its share.

With China's rapid economic growth and further integration with the international community, China's credit business will also have considerable growth. The four major state-owned banks and a number of domestic financial institutions have been listed one after another. If we cooperate with the further circulation of the RMB and international currencies, and continue to deepen market-oriented reforms, China's credit market is believed to bring another wave of credit derivatives Sexual growth.