Los b - Evaluate hedging strategies that rely on swaps and illustrate the risk exposures. Can someone please highlight the concepts that this LOS is looking for ? Thanks!!
Inherent Risk Exposure I would say are: PREPAID SWAPS: from the BUYERS perspective - Credit (paid for oil upfront not delivered for several years), Financial and Market Risk (Oil prices drop) (bottom of page 370) FINANCIALLY SETTLED: Risks from changes in forward prices and interst rates but MUCH less credit risk