Assume that you are a hedge strategist for Bank of America and consider hedging its loan portfolio against credit risk. Formulate ONE creative solution to hedge the credit risk of Bank of America. Analyse how Bank of America can be protected from credit risk based on such a strategy and possible drawbacks.

What are the implications of speculation using credit derivatives in the context to the broader society and economy? Provide examples where necessary.

Answer rating: 100% (QA)

1 Assuming that the Bank of Americas loan portfolio consists primarily of corporate loans one way to hedge the credit risk of the loan portfolio would be to purchase credit default swaps on a basket o... View the full answer