In: Finance
QUESTION 4: You have been provided with the credit portfolio footnote disclosure of JP Morgan Chase from their 2017 annual report. Answer the following:
1.a . Derivative netting is a hedging procedure which is adopted by various company to reduce their risk exposure related to various types of transactions for various types of risk associated with the portfolios and in case of JP Morgan Chase it would be various kinds of inter bank transactions and it can also be related to foreign currency transactions along with exposure related to credit default swaps and exposure in real estate assets.
derivatives netting is used to reduce settlement risks and other financial risks
b)derivatives notional principle is used in various contracts related to derivatives because principles amount are just used for entering into the contract and settlement of the contract but it is not paid. settlements are based upon the fluctuations made between the value of the contract.The value of the principal is not exchanged, it is just the exchange of difference in the value of contract