4 Overview of Derivative Financial Products

Subject(s):

Credit default swap (CDS) — Spread swap (CSS) — Total return swap (TRS) — International Swaps and Derivatives Association (ISDA)

This chapter begins with a description of the volatility of financial markets. It then turns to ‘swaps’, a tool developed by banks and investment banks to deal with the increasing volatility in foreign exchange rates, interest rates, and commodity prices in the 1970s. This is followed by a discussions on the founding of the International Swaps and Derivatives Association (ISDA) in 1984 and how companies' use derivatives to manage and hedge their market risks.