Exposure At Default and Off-balance sheet finance: Difference between pages

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imported>Doug Williamson
(Classify page.)
 
imported>Doug Williamson
m (Add 'bookkeeping' after 'double-entry'.)
 
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''Credit risk evaluation - banking''.
Any form of finance that does not result in a corresponding liability appearing on the entity's published balance sheet.
On double-entry bookkeeping principles the asset being financed cannot appear either.
The effect of such financing and accounting methods is to show the company's borrowings and financial risk at a lower level than they really are.


(EAD).


Exposure At Default is an amount expected to be outstanding following a default by a counterparty, taking account of:
== See also ==
*Any credit risk mitigation;
* [[Balance sheet]]
*Drawn balances; and
* [[Double entry]]
*Any undrawn amounts of commitments and contingent exposures.
* [[ED 2010/9]]
 
* [[Finance lease]]
 
* [[Gearing]]
=====Exposure At Default for derivative contracts=====
* [[IAS 17]]
The Exposure at Default (EAD) for a derivatives contract has two components:
* [[Liabilities]]
*The current fair market value or replacement cost (RC); and
* [[Off balance sheet]]
*The possible future increase in the market value over the remaining life of the contract.
 
 
This possible future increase is known as the Potential Future Exposure (PFE).
 
 
Considering both elements of the derivative contract EAD together:
 
EAD = RC + PFE
 
 
==See also==
*[[Default]]
*[[Expected Loss]]
*[[Loss Given Default]]
*[[Potential Future Exposure]]
*[[Probability of Default]]
*[[Replacement cost]]
 
[[Category:Accounting,_tax_and_regulation]]
[[Category:Identify_and_assess_risks]]

Revision as of 08:18, 25 July 2014

Any form of finance that does not result in a corresponding liability appearing on the entity's published balance sheet.

On double-entry bookkeeping principles the asset being financed cannot appear either.

The effect of such financing and accounting methods is to show the company's borrowings and financial risk at a lower level than they really are.


See also

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