In the context of commercial financing of developing countries, financial engineering and liability management are techniques that aim to cushion interest rate and currency shocks to debtor countries through hedging. For instance, interest rate swaps and interest rate caps reduce the interest rate sensitivity of existing liabilities by converting floating-rate borrowings into fixed-rate liabilities or by putting a ceiling on future interest rates. Similarly currency swaps can hedge currency exposure and alter the currency mix of a debt portfolio to match the composition of the debtor's export revenues. Financial hedges of this type involve a risk for the provider of the hedge that the purchaser - in this instance the debtor country - will not fulfil his obligations when the contract matures. This restricts use of these techniques to borrowers that have remained creditworthy, unless the risk can be guaranteed by a creditworthy third party.
The Encyclopedia of World Problems and Human Potential is a unique, experimental research work of the Union of International Associations. It is currently published as a searchable online platform with profiles of world problems, action strategies, and human values that are interlinked in novel and innovative ways. These connections are based on a range of relationships such as broader and narrower scope, aggravation, relatedness and more. By concentrating on these links and relationships, the Encyclopedia is uniquely positioned to bring focus to the complex and expansive sphere of global issues and their interconnected nature.
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