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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Worswick who wrote (6294)	9/9/1998 3:07:00 PM
From: Defrocked	Read Replies (2) \| Respond to of 9980

The notional swaps outstanding and the derivatives exposure outstanding are substantially different in concept and economic substance. Say there are 418 trillion yen in notional outstanding or around 3 trillion in US dollars. Many of these transactions have offsetting swaps which are included in the total amount. In other words, when they buy a swap and turn around and sell it to someone else the notionals are counted twice. Moreover, swaps are an agreement to exchange cashflows based on the notional amount. Like a futures contract, swaps valuation is based on the change in the underlying not the underlying quantity itself. Therefore, it would be unusual for the total swap book to change by 10% in a year especially if most of the swaps are short-term in nature, i.e. short dated currency or interest rate swaps. Thus, one could back into Fuji's exposure by assuming 95% of the positions are netted and the remaining 5% subject to 10% swings or ($3 trillion times (1-.95) times 10%) equals $15 billion. Fuji says its maximum possible loss is 15 billion yen or around $100 million suggesting most of its swap exposures are very short term in nature and mostly netted. Whether the amount declared by Fuji Bank includes credit exposure in addition to market exposure is unclear but does seem implied by the article. I do find it interesting they had to employ last March's statement rather than current positions in their press release however. Hope that helps.