【正文】 sk* Industry Risk* Regional RiskRisk free value of money. Investment Risk. 3 Year, Fixed Rate, Corporate Bond, (Price = Par, Average Rate = Risk Free + 275 bps)12CorporateBankingand InvestmentBuilding BlocksAsset SwapsCorporateBankingand InvestmentAsset Swapsn The product allows the following。lStripping out interest rate risk by converting fixed payments to floating, or vice versalStripping out currency risk by converting cash flows in one currency to cash flows in another currencylStripping out equity risk in a convertible bond to leave a pure credit piecen In each case, however, there is residual risk in the event that the underlying bond goes into default. This risk is specially high in case of high correlation14CorporateBankingand InvestmentCross Currency Asset Swapn Cash instrument available in an undesirable currency (, several credits have debt denominated only in USD, and none in HKD)n Offshore pricing of credit vis a vis onshore pricing of credit offer relative value opportunities n Gain access to the cheapest asset available for a particular currency, regardless of currency of denominationn Gain access to new markets US ‘A’ credits much wider than Asian ‘A’ credits. For HKD investors looking to diversify into other asset classes / markets, cross currency asset swaps offer a solutionn Risk in the event of default of the underlying bonds, investor still has a cross currency swap exposure. , if swap is from USD to HKD, and HKD depreciates, there is marktomarket loss on the swap.n Credit consideration on the counterparty, specially for long dated swaps15CorporateBankingand InvestmentCross Currency Asset SwapSwapped Coupons in HKDBuyer SellerCoupons of BondOn Coupon DatesCash Price in HKD at Spot (Initial Spot)Buyer SellerBondOn Settlement DateBuyer SellerOn Maturity DateRedemption Amount of BondSwapped Redemption Amount in HKD16CorporateBankingand InvestmentBuilding BlocksCredit Default SwapsCorporateBankingand InvestmentCredit Default Swapn A transaction which allows the transfer of the credit risk of a Reference Entity between counterparties in swap formn Two parties enter into a swap agreement wherebylthe protection buyer pays a fixed periodic payment, usually expressed in basis points per annum on the notional amount, for the life of the agreementlthe protection seller makes no payments unless some specified credit event relating to a Reference Entity occurs, in which case the protection seller is obligated to make a contingent settlement CorporateBankingand InvestmentInvestorFeeBNP ParibasInvestor sells default protection ZeroNo Credit EventContingent SettlementCredit EventCredit Default Swap19CorporateBankingand InvestmentCredit Default Swapn Transforms asset specific credit risk to Reference Entity riskn Contingent settlement, which is triggered by a Credit Event can be calculated in several ways. Settlement options includel physical delivery of Reference Obligati