Structured note markets - Giddy

98 Financial Stability Review: June 2004 Structured note markets : products, participants and links to wholesale derivatives marketsFOR CENTRAL BANKS,understanding how the modernfinancial system fits together is a necessaryfoundation for making sense of market developments,for understanding how to interpret changes in assetprices and, therefore, for identifying possible threatsto stability and comprehending the dynamics ofcrises. Derivatives are an integral part of this, usedwidely for the management of market , credit andother risks. The associated positions and hedgingstrategies of banks and dealers are an importantinfluence on how markets respond to changes inunderlying fundamentals. It is perhaps less familiarthat derivatives are also used by investors to takemarket risk in search of additional returns often viabonds known as Structured investors purchase such notes in order toobtain initial coupons that exceed market interestrates, receiving upfront premia for, in effect, writingoptions embedded in the notes .

98 Financial Stability Review: June 2004– Structured note markets: products, participants and links to wholesale derivatives markets FOR CENTRAL BANKS,understanding how the modern financial system fits together is a necessary

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