of countermeasure the company needs to have.
3-2. Transaction Exposure
Transaction exposure is a type offoreign exchange risk faced by companies that engage in
international trade. It is the risk that exchange rate fluctuations will change the value of a contract
before it is settled. Transaction exposure is also called transaction risk.
Briefly, Transaction
contract is written based on the Standards of ISDA (International Swap and Derivatives Association). Also, details are agreed upon specifically between the parties of the contract.
According to ISDA in 1999, six types of credit events are defined: failure to pay, bankruptcy, obligation acceleration, obligation default, repudiation/moratorium of a nation, and restructuring.
Reference Assets
contracts
Barings collapsed – could not meet huge trading obligations
Outstanding futures positions of $27 billion
(Barings’ capital was $615 million)
Second. Supervision problems
Several his superiors had only a vague understanding of derivatives and did not accept responsibility over him.
No one investigated a default in account “88888”
No comprehensive review o
of sufficient providers (lack of competition)
The number of eligible provider agencies may be so small or nonexistent that the expected competition among providers does not occur.
Limited capabilities of provider agencies
The managerial competence of provider agencies poses problems for government in POS contracting
Role ambiguities
Clients may be unclear about who is really responsible f
of additional measures that supervisors could take to achieve a better balance between risk sensitivity and the stability of capital requirements, should this be viewed as necessary. In particular, the range of possible measures includes an approach by the Committee of European Banking Supervisors (CEBS) to use the Pillar 2 process to adjust for the compression of probability ofdefault (PD) esti