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The length of time for which one is committed to | {{g}}The [[term]], or “[[tenor]]”, of an [[instrument]] is the length of time for which one is committed to it. 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 security|transferable]], so you can sell it to another investor and close out your own exposure. | 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. | ||
Latest revision as of 11:52, 18 November 2020
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The term, or “tenor”, of an instrument is the length of time for which one is committed to it. 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).