Expanding CDO market exposes new FX risks
One such potential risk, said analysts at Fitch Ratings’ structured finance division, is in the combination of euro and non-euro assets in European cashflow arbitrage CDOs. These combinations may create a mismatch between the assets and liabilities of the CDO. That leaves the purchasing investor open to the risk of shifting exchange rates between the two currencies in which assets and liabilities are denominated, and the risk of interest rate divergence between the two currencies upon completion
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