14 Pages Posted: 17 Mar 2012
Date Written: December 3, 2011
The past decade has witnessed a high growth in the volume of international trade like changes in the interest rates, exchange rates and stock market prices in the different financial markets and this increased the financial risk to the corporate world. But derivatives are there to hedge this financial risk. Most important is credit risk (in case of banks especially). In order to cope up with this risk credit derivatives are there. But there are some perils of credit derivatives even when they are there to provide a cushion to bankers especially. These credit derivatives became the main reason of the sub-prime crisis in the USA. Other areas are also there where investors and companies suffered heavy losses due to the credit derivatives. So, credit derivatives have two aspects like a coin and this article presents these two aspects.
Keywords: Derivatives, Mishaps of Derivatives, Derivatives–Financial Weapon to Mass Destruction, Credit Derivatives
JEL Classification: F3, G33
Suggested Citation: Suggested Citation