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Credit Derivative

   Also found in: Acronyms, Wikipedia 0.03 sec.
Credit Derivative
Privately held negotiable bilateral contracts that allow users to manage their exposure to credit risk. Credit derivatives are financial assets like forward contracts, swaps, and options for which the price is driven by the credit risk of economic agents (private investors or governments).

Notes:
For example, a bank concerned that one of its customers may not be able to repay a loan can protect itself against loss by transferring the credit risk to another party while keeping the loan on its books.


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Most credit derivatives do not qualify for hedge accounting treatment, which would permit the gain or loss on the credit derivative to be reported in the same period as the gain or loss on the position being hedged, assuming the hedge is effective.
The ability for investors to evaluate the market risk of their credit derivative portfolios will be increasingly important," said John Schiavetta, Group Managing Director, Derivative Fitch.
BISYS Alternative Investment Services, a leading global provider of administrative, accounting and tax services for the hedge fund and private equity industry, today announced a new strategic partnership with T-Zero, a credit derivative market leader in trade affirmation.
 
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