FRM Learning Objectives: 1) Explain how a currency swap can be used to transform an asset or liability and calculate the resulting cash flows. 2) Describe wrong-way risk and contrast it with right-way risk. 3) Identify examples of wrong-way risk and examples of right-way risk.
Wrong Way Risk has pricing implications and it magnifies CVA. If this risk is correctly incorporated in the pricing of the cross currency swap, the US investor can negotiate for a higher USD rate and/or lower LC rate (compared to the situation where WWR is ignored).
FRM Learning Objectives: 1) Explain how a currency swap can be used to transform an asset or liability and calculate the resulting
cash flows. 2) Describe wrong-way risk and contrast it with right-way risk. 3) Identify examples of wrong-way risk and examples of right-way risk.
You have one of the best way to explain concepts intuitively
Thank you for the appreciation.
Excellent sample! save my exam, textbooks never provides clear samples😂
Thank you for your video. It was very helpful to understand wrong way risk!
Glad you found it helpful, Alexander
well-explained!
Very interesting. Does that mean you would demand even more collateral than if they were independent?
Wrong Way Risk has pricing implications and it magnifies CVA. If this risk is correctly incorporated in the pricing of the cross currency swap, the US investor can negotiate for a higher USD rate and/or lower LC rate (compared to the situation where WWR is ignored).