BUS-F 446 Lecture Notes - Lecture 6: Enterprise Risk Management, Futures Contract, Interest Rate Risk
Document Summary
That stuff could go back into the balance sheet. See slide 2 for that stuff, net worth, obs items included. Biggest single piece of obs items is interest rate derivatives esp. swaps. Trying to use derivatives to manage interest rate risk to immunize it. Credit default swaps: pay off when a party defaults helps with default risk. Structured notes bonds with associated options; could be on anything, and could be used to circumvent regulation. Study table 16-1: major types of off-bal. Loan commitments: interest rate risk, take-down risk, credit risk, all in risk. 13-1: calculation of the promised return on a loan commitment. Letter of credit: like cd"s; promise to pay if someone defaults: regular versus standby; standby are based on weirder events, like credit insurance. Dealing with an exchange: exchanges will do everything to lower the terms of the deal and prevent excessive risk-taking. This is notional value = the amount specified in the contract.
