Cyber*School

the process of determining the extent of credit risk inherent in a financial instrument or portfolio

Banks must have independent credit control units that are responsible for the design or selection, implementation and performance of their internal rating systems. The unit(s) must be functionally independent from the personnel and management functions responsible for originating exposures.

a system used by lenders to calculate the statistical probability that a loan they grant will be repaid

The difference in yield between two instruments of similar maturity and duration. The credit spread is often quoted as a spread to a benchmark floating-rate index such as Libor and used as a measure of relative creditworthiness.

The VaR of a loan portfolio is called credit value at risk.

a security with redemption and/or coupon payments linked to the occurrence of a credit event with respect to a specified reference entity

An entity (person or institution) that extends credit by giving another entity permission to borrow money if it is paid back at a later date. Creditors can be classified as either "personal" or "real." Real creditors (i.e. a bank or finance company) have legal contracts with the borrower granting the lender the right to claim any of the debtor's real assets (e.g. real estate or car) if he or she fails to pay back the loan.

swap in which the notional amount is exchanged at the beginning and at the end of the term as well as interim interest payments, the main difference to FX-swap is the interim payment of interest. Types:par value swap: initial- and final-transaction are effected at the same rate (usually the spot price at the conclusion of the swap)forward outright swap: the initial transaction is done at the spot rate, the final transaction is done at the forward rate

a clause in a loan or other debt contract that specifies that an entity is in default if it fails to pay another obligation

abbr. Capital Requirements Regulation

abbr. Central Securities Depository

abbr Cheapest-to-Deliver

see interpolation

the percentage of borrowers who default during the lives of their loans in a given portfolio

The aggregate amount that an investment has gained or lost over time, independent of the period of time involved. Presented as a percentage, the cumulative return is the raw mathematical return of the following calculation: (Current price of security - orignial price of security)/orignial price of security

occurs when, in a hedge, the credit protection is denominated in a currency different from the exposure

Risk of a reduction in bank results due to exchange rate changes.

Current assets / short-term liabilities x 100i

A valuation ratio of a company's current share price compared to its per-share earnings. Calculated as: Market Value per Share / Earnings per Share (EPS); EPS is usually from the last four quarters (trailing P/E), but sometimes it can be taken from the estimates of earnings expected in the next four quarters (projected or forward P/E). A third variation uses the sum of the last two actual quarters and the estimates of the next two quarters.

Income (interest or dividends) divided by the current price of the security. This measure looks at the current price of a bond instead of its face value and represents the return an investor would expect.