1. Produce a final report covering the following issues:
(i) Explain what you understand by the term credit risk. Discuss the alternative methodologies which have been proposed to measure credit risk. Your discussion should include the limitations of each approach.
(ii) Explain, in general terms, what are Credit Derivatives and then more specifically explain what Credit Default Swaps (CDS's) are. Discuss with suitable evidence whether you agree with the School of Thought that maintains that CDS's were responsible for the financial crisis of 2007/8.
(iii) Based on the lessons learnt during the recent financial crisis, what should:
a. Legislators do to ensure that CDS's are not responsible for financial instability.
b. Regulators do to ensure that appropriate risk management methodologies are in place.
c. Banks do to their risk management systems and to their management culture.