In part 1, we provided a general overview to get started with the Basel II implementation. We will now discuss the factors to be considered in determining the application of Basel II from both a supervisor and a bank perspective. … Continued
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Certificates of Deposit (CDs)
Certificates of deposit originated in the domestic US market (where they are directed primarily at the retail market). In the euromarket, however, CDs are very closely allied to interbank deposits. A CD is a record evidencing the placement of a … Continued
Practical Guide to Basel II Implementation: Part 1 of 6
In June 2004, the Basel Committee on Banking Supervision (BCBS) published the document “International Convergence of Capital Measurement and Capital Standards, a Revised Framework” (widely known as Basel II). Basel II aims to build on a solid foundation of prudent … Continued
Application of VaR to Non-Market Areas
Financial Institutions are often faced with risks other than normal market risk. That is especially true with derivative transactions. In derivative transactions, institutions need to increase their estimate of allowable loss amount by incorporating the following risks: Pre-settlement risk Settlement … Continued
How Interest Rate Collars Work?
An interest rate collar (or floor ceiling) is an agreement where the seller or provider of the collar agrees to limit the borrower’s floating interest rate exposure to a specified ceiling rate and floor rate. Analytically, this represents the simultaneous … Continued
Exchange-traded versus Over-the-counter (OTC) Derivatives
An exchange traded product is a standardized financial instrument that is traded on an organized exchange. An over the counter (OTC) product or derivative product is a financial instrument traded off an exchange, the price of which is directly dependent … Continued
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