Derivative Financial Instruments Employed For Risk Management

Derivative Financial Instruments Employed for Risk Management Credit Risk Derivatives may be traded either via an exchange (exchange traded) or alternatively, privately negotiated contracts, which are generally alluded to as Over The Counter (OTC) derivatives. Exchange traded and OTC-cleared derivative contracts have downgraded Macquarie’s credit risk as their counterparty is a clearing house, accountable for the handling of risk management for their members to guarantee that the clearing house has sufficient resources to carry out its upcoming obligations. Members are instructed to produce initial margins in agreement with the exchange rules in the form of cash or securities, and further present daily variation margins in cash to cover adjustments in values of the market. Macquarie has exchange traded derivatives with positive replacement values as at 31 March 2016 of $1,794 million, whereas as at 31 March 2016 of $4,641 million. For OTC derivative contracts, Macquarie commonly has master netting agreements (usually ISDA Master Agreements) with specific counterparties to handle and control the credit risk associated. The credit risk connected with positive replacement value contracts is condensed by master netting arrangements that in an occurrence of default necessitates that balances with a certain counterparty covered by the agreement (for example derivatives and cash margins) to be discontinued and settled on a net basis. Macquarie frequently executes a CreditShow MoreRelatedThe Risks Of The Shipping Industry1426 Words   |  6 PagesThe Risk sources in the Shipping Industry along with current opportunities and future threats to the company’s core business â€Å"Technically, shipping risk can be defined as the ‘measurable’ liability for any financial loss arising from unforeseen imbalances between the supply and demand for sea transport† (Stopford 2009). 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