Raising the stakes

Derivatives are useful and increasingly widespread, but buyer beware says Calcutta-based author Vinod Kothari.

What role can credit derivatives play in developing markets

Vinod Kothari Depending upon how you use them, credit derivatives may either be hedging tools to protect against credit risks inherent in exposures held by banks, or trading tools as a proxy tool to allow trading in the general credit of a reference entity, and thereby replicating a cash bond. In practice, credit derivatives trades today are more trading tools than hedging tools.

There is no data to confirm this, but that is a view generally shared by credit derivatives dealers. However, at the end of a chain of trades, there might be somebody using it...

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