Balancing currency and credit risk

Credit-contingent currency swaps are being touted as a way for institutions to reduce their hedging costs. How do these products work? And will this largely opaque market ever become standardised? Sarfraz Thind reports

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The number of emerging market corporates and asset managers using currency swaps that include a credit event function has increased dramatically during the past year. And dealers, which have invested heavily in cross-asset class correlation models and associated risk management technologies, believe this growth in the use of hybrid credit-contingent swaps is set to continue.

Dealers say companies are attracted to credit-contingent products because they improve access to financing and can reduce

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