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How credit linked notes work. Why issuers and investors use credit linked notes. The main risks related to credit linked notes

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Course Summary

Credit linked notes menu Credit linked notes structure Credit linked notes cash funded

Credit linked notes risks Credit linked notes risks 2 Credit linked notes risk summary

30 minutes
7 question multiple choice
How credit linked notes work
Why issuers and investors use credit linked notes
The main risks related to credit linked notes

Credit Linked Notes - the details

1. Credit linked notes

A medium term note and a credit default swap
How a bank originates the CLN
Risk and return for the investor
How the bank originator reduces funding costs
Why investors buy CLNs

2. Credit linked notes – the risks

No credit event, repayment
Credit event
Final terms
The investor’s loss
Why the bank is hedged
Investor’s credit risk on MTN
Liquidity, fair-value and operational risks

3. Summary

4. Test

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Introduction A bond is a long term debt obligation. It is sold by the borrower who is called the "issuer" in order to borrow money for the medium and long term. Typically a bond will have a maturity of between 2 and 20 years. The issuer can be a bank, company or government institution. A bond normally has a known maturity or redemption date and during its life pays the investor interest. The interest payments are called "coupons". Bond investors rank prior to equity holders in liquidation but are subordinate to secured lenders. From an issuer's perspective the coupons are usually tax deductible (unlike dividend payments on equity). Bond markets provide investors with variety. One of the most frequently issued bonds is called a floating rate note.