Business

A Credit Support Annex represents a legal document that works alongside the ISDA Master Agreement to manage credit risk between parties trading derivatives. Think of it as a detailed rulebook that explains how two trading partners handle collateral when they make deals with each other. Basic Overview Trading partners need ways to protect themselves when…

A credit squeeze happens when a country’s central bank makes it harder for people and businesses to borrow money. The central bank does this on purpose to control how much money moves around in the economy. They use different tools like making loans more expensive or telling regular banks to keep more money in their…

Credit spread risk represents the possibility of losing money when credit spreads widen, typically happening when investors become more worried about a borrower’s ability to repay their debts. This financial risk affects many different markets and participants, from individual investors to large financial institutions. What Credit Spreads Tell Us Credit spreads measure the extra interest…

A credit score works like a report card for how you handle money and pay your bills. Consider it a number that tells banks and other companies whether they can trust you with loans and credit cards. Most credit scores go from 300 to 850 – higher numbers mean you’ve been good at paying bills…

A credit reserve acts like a safety net for banks and companies when they lend money. Think of it as money set aside to cover losses they expect might happen when people or businesses can’t pay back what they borrowed. The official name for this is a “contra-account” because it reduces the value of other…

Credit ratings help people and companies understand how likely someone is to pay back money they borrow. These ratings work like a financial health check that tells lenders whether giving money to a person or company is safe or risky. What Makes Up a Credit Rating Money Coming In Companies and people need steady income…

Credit portfolio models are special math tools banks use to figure out how much money they might lose. See, banks lend people and companies cash, but sometimes the loans don’t get paid back. That’s called a default. Many loans, many risks A single default is bad enough. But picture a bank with hundreds or thousands…

A credit mark-to-market model is a special kind of math used by banks and other money lenders. They use it to figure out how much money they might lose if someone they gave a loan to has money problems later on. How the model works The model looks at the chances that the person or…

A credit event is something bad that happens which shakes up the market for credit derivatives. Credit derivatives are a special kind of financial product – they’re sort of like insurance against a company or country not paying back the money it owes. The whole point of a credit derivative is to protect the person…

A credit derivative is a special type of agreement between two groups, called “parties”. The first party gives the second party money. In exchange, the second party promises to pay back the first party if a borrower they chose does not repay their loan. This might sound confusing, but do not worry – we will…