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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REYKJAVIK - Confusion reigned in Icelandic króna trading last week, as the country's central bank, Sedlabanki, abandoned its peg to a basket of nine currencies a day after it was effected.

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Rating agencies assess CP markets

EUROPE – Fitch Ratings and Moody's sought to capture the effect of the commercial paper (CP) market's lack of liquidity on the wider banking outlook in two conference calls last week.

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