"bilateral" credit risk??

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westbruin

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is that wrong? i.e. cross-default.
only thing that came to my head.
 
what does “bilateral”?
i thought two way, but not exclusive……….. although i went with two way, exclusive because only thing that popped in my mind
 
the only question where something had to just pop into my mind “seemingly out of nowhere”
 
personally, I thought the issue with that was that it was OTC btw bank and our guy…OTC isn’t an exchange (which isnt guaranteed) so risk is with actual counterparty (thru the bank)…thinking to much?
bilateral = affecting or undertaken by two parties
so that wasn’t incorrect since its currency swap (eg nominal exchanged)
thoughts?
 
Squirrel24 Wrote:
——————————————————-
> personally, I thought the issue with that was that
> it was OTC btw bank and our guy…OTC isn’t an
> exchange (which isnt guaranteed) so risk is with
> actual counterparty (thru the bank)…thinking to
> much?
>
> bilateral = affecting or undertaken by two
> parties
>
> so that wasn’t incorrect since its currency swap
> (eg nominal exchanged)
>
> thoughts?
actually, that’s what i went with first………. and changed it…………. didn’t they say that his statement was incorrect? wouldn’t “bilateral” being OTC make the statement correct?
did i misread question?? because i generally like your answer, just thinking reverse.
 
yes, bilateral means two-way. I think the simple answer is in this case the correct one. Only ONE side bears credit risk at any given point in time.
 
mightysparrow Wrote:
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> yes, bilateral means two-way. I think the simple
> answer is in this case the correct one. Only ONE
> side bears credit risk at any given point in time.
i like your answer and sounds like it might be right
i think all others are saying cross-default and otc vs. clearinghouse…….. and i think the lack of responses to this threads speaks huge volumes. probably very easy to mark this question.
 
mightysparrow Wrote:
——————————————————-
> yes, bilateral means two-way. I think the simple
> answer is in this case the correct one. Only ONE
> side bears credit risk at any given point in time.
This was a currency swap, so both parties should have credit risk because they swap the principal. I put that the statement is incorrect because North Fork is a middleman and there’s another party that bears credit risk.
 
had no idea!!…since they said it was incorrect I just went with that credit risk was “unilateral”. I know they said not do a reverse but I figured that meant not writing “not bilateral”
I guess with a hail mary pass!
 
mightysparrow Wrote:
——————————————————-
> yes, bilateral means two-way. I think the simple
> answer is in this case the correct one. Only ONE
> side bears credit risk at any given point in time.
That’s also how I reasoned.
NC
 
I was thinking that Put option was out of the money, so there is no (current) credit risk.
I don’t know if I was correct.
 
Put option - only the holder can bear credit risk w/ options remember. Holder has potential credit risk (it was in the money)
 
i had credit risk as being unilateral. and mark to market as hedging credit risk.
 
I am not able to recollect the exact question.
For forward - credit risk is bilateral
For put - unilateral and long had it as it was in the money
Hedging - Reduce the exposure to counterparty. In the case, the bearer had only one bank as dealer, which increased the credit risk, so he should diversify by having more dealers and also I mentioned the use of collateral.
 
credit risk is bilateral on a currency swap because payments are not netted. Both parties are making payments to the other so both have potential credit risk.
 
But netting in between help to offset large exposure from one to other if market has moved to different direction significantly.
 
isn’t it that settlement risk is bilateral on a currency swap, but credit risk is not. Only one party is the loser at any point in time?
 
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