Derivatives question for banks - Please assist

This is a discussion on Derivatives question for banks - Please assist within the Futures & Options forums, part of the Markets category; Thanks for the Tripleogstar....

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Old Jan 10, 2009, 10:28pm   #16
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free_money started this thread Thanks for the Tripleogstar.
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Old Jan 11, 2009, 7:38pm   #17
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sorry if this has been covered before. I'm an ex IB derivatives dealer (sales side)

OTC = Over The Counter. basically means any product (deriv, bond, equity, whatever) that isnt traded through an exchange. FTSE 100 stocks trade on the London Stock Exchange (LSE), FX Options trade OTC because they are bought and sold directly between banks (or individuals) on the interbank market. there are reasons why some products trade OTC vs exchange which are usually down to history. also, trading OTC you assume the credit risk of the counterparty you trade with.

how do banks manage risk? same as you and i do. they use swaps to hedge interest rate risk. fx forwards to hedge future fx risk. etc etc etc. remember that derivs were invented to reduce risk rather than speculation
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Thanks! The following members like this post: free_money
Old Jan 11, 2009, 11:58pm   #18
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free_money started this thread Thank you very much for that Bowball, that has really cleared things up!
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