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The length of time for which one is committed to any transaction or lending arrangement. The longer the term, the more risky the investment, because the time value of the option you have written on the counterparty's credit exposure increases. | The length of time for which one is committed to any transaction or lending arrangement. The longer the term, the more risky the investment, because the time value of the option you have written on the counterparty's credit exposure increases. | ||
One way of reducing this term exposure is to make an | One way of reducing this term exposure is to make an instrument [[Transferable security|transferable]], so you can sell it to another investor and close out your own exposure. | ||
Compare with [[cash product]]s, which have no term (or at least a very short term). | |||
{{seealso}} | |||
*[[Cash product]]s | |||
*[[Transferable securities]] | |||
Revision as of 11:56, 27 December 2018
The length of time for which one is committed to any transaction or lending arrangement. The longer the term, the more risky the investment, because the time value of the option you have written on the counterparty's credit exposure increases.
One way of reducing this term exposure is to make an instrument transferable, so you can sell it to another investor and close out your own exposure.
Compare with cash products, which have no term (or at least a very short term).