Measure the Credit Risk in the Cross Currency Swaps

• Main Authors: Fung-Yuan Tsay, 蔡豐源
• Other Authors: 胡為善
• Format: Others
• Language: zh-TW
• Published: 1999
• Online Access: http://ndltd.ncl.edu.tw/handle/61001643994160382466

碩士 === 中原大學 === 企業管理學系 === 87 === ABSTRACT The currency swap has been one of the most important derivative products in international market. It usually coordinates with bond to be published, in order to decrease the leveraged cost. The investor also utilized the currency swap to manage money market, and increased rate of return. The currency swap's risk occurs when exchange changes, and it is the variation in corporate profit earning's efficiency, net cash flow, and market price. The currency swap involves interest rate risk and currency rate risk, included the basis risks and mismatched risks which evaded the risk in swap. Even though currency swap may produce profit, yet the credit risk still exist, Because the opponent could reject contract obligation. This research uses Credit-Metric which was developed by J.P.Morgan in 1997 to calculate the risk transfer coefficient which is defined in Hull (1998) and simulation method to develop the model which measures the credit risk when the currency swap carries on. The research obtained the followed empirical result: 1. Domestic banks acquire fixed currency rate and fixed interest rate bond interest, The credit risk's transfer coefficient are distinctly between 0.358%-0.953% and 0.645%-4.025%.The result is similar to which Federal Reserve Board and the Bank of England evaluating the credit risk in interest distribution assumption, at a 95% confidence interval which does not exceed 1%. 2. This research finds that the credit risk transfer coefficient will enlarge when the contract period lengthers with observing the individual parameter. 3. When the banks deal with the currency swap, the credit risk the banks involved is much smaller than the risk of currency rate and interest rate. 4. The credit risk's exposure is positively related with currency rate and interest rate fluctuation, it shows that the credit risk's exposure increases when the currency rate and interest rate fluctuated acrimoniously.