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
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
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