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You suggest that your bank should enter into Credit Default Swaps (CDS) contracts with bank XYZ to hedge the credit risk exposures faced from loans
You suggest that your bank should enter into Credit Default Swaps (CDS) contracts with bank XYZ to hedge the credit risk exposures faced from loans to both companies (ABC and DEF). Using graphical illustrations, explain how these derivative contracts will help your bank manage credit risk from both firms and suggest when your bank will default as a result of all contractual agreements it has with the three counterparties.
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