March 2002
Intermediate to advanced
176 pages
3h 48m
English
book
Asset and Liability Management: The Banker’s Guide to Value Creation and Risk Control, Second Edition
by Jean Dermine, Youssef F. Bissada
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Financial futures
To reduce the risk of counterparty default, financial futures contracts can be used. They have several characteristics.
A third party involved. The first characteristic of financial futures is to involve an independent third party in the transaction, the future exchange. The contract between e-Bank and Alpha Bank is replaced by two new contracts (legal notion of novation) connecting the two banks with the future exchange (Figure 14.1).
Figure 14.1. The role of the future exchange
The counterparty risk between the two banks has been replaced by a counterparty risk with the exchange. This one has usually very strong shareholders ...
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