CPD FRAs Swaps and Credit Derivatives
Before embarking on the exploring Swaps and FRA’s we need to explain and define the general meaning and background of Derivatives.
History is littered with examples of financial institutions and companies that have endured deep crises, or indeed collapsed, due to misjudgments. These could be misjudgments due to the price
of oil, due to the price of property, due to the gold price and are often the misjudgments on the direction of an exchange rate or an interest rate. The fact that these positions were taken with derivative instruments is ultimately irrelevant. The real problem was the “original wrong” view on the market. To blame derivative transactions is like saying that it was the bullet that killed
the person, when in fact it was the man who fired the gun who was at fault!
Negative publicity surrounding derivatives means that the uninformed or misinformed company may interpret the use of any derivatives as highly speculative – even when they are used for risk
management. The term “derivative” seems enough to strike fear into the boardrooms of some of our major companies.