AQ020-3-3 RMIB INDIVIDUAL ASSIGNMENT

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This assignment is an individual assignment and is worth 30% of your total assessment. Proper
referencing and citation should be included and use Harvard Referencing method. Your
assignment must be type written using font Times New Roman size 12, 1.5 spacing, justified
alignment, 1-inch margin on both sides of each page and properly bound. The numbers of words
should not be less than 3000 words. Cover page of the assignment must include name, student
ID, and subject code.
Article
Over the years, Wall Street's financial wizards have continually responded to the markets
demand for more efficient financing tools that allow corporations to either lower their cost of
funds, take advantage of special tax situations or access a new lending base. In the early 1980s
the interest rate market began a new wave of financial innovation with the development of the
swap market, which provided reduced credit margins for borrowers in different markets while
allowing derivative houses to gain profits through their role as intermediaries. At each phase of
the swap market's development, new interest rate derivatives to were added to product menus.
For example, vanilla interest rate swaps paved the way for cross currency swaps bringing the
foreign exchange markets into the field and flat-forward foreign exchange contracts contributed
to the emergence of the energy swaps market. In each of these cases, the market was bundling,
unbundling, repackaging and transferring risk between counterparties. One of the latest crazes to
hit the market has been the introduction of credit derivatives, mechanisms that allow institutions
to unbundle the credit risk portion of traditional debt instruments from market risk in an effort to
improve pricing efficiency
Required:
1. Using (1) one example of Credit Derivatives product apart from Credit Default Swaps write
an overview of the product.
(30 marks)
2. Examine the advantageous and disadvantageous of the selected Credit Derivatives product as
a risk management tool for credit risk.
(50 marks)
3. Suggest recommendations on how Credit Derivatives products can be further improved as a
credit risk mitigation tool.
APU Level 3

Asia Pacific University of Technology & Innovation

201602

AQ020-3-3 RMIB INDIVIDUAL ASSIGNMENT

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(20
marks)
(TOTAL: 100 marks)
To attempt this assignment successfully, student need to display a wide range of financial
management tools and required to apply knowledge learned throughout the subject. Every
question should be assessed critically and rationally. References from books, articles or
academic journals are required and marks will be reducing if none of the conditions apply.
Any enquiries in relations to the assignment should be put up one week before the
submission.

APU Level 3

Asia Pacific University of Technology & Innovation

201602