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please help me to understand a finance text..?
As the risk of default on the assets increased, AIG has had to write-down the value of protection it sold and post colleteral to its counterparties..
please help me to understand the sentence after "write-down".. with another and simple words please.:-)
P.S Im from Germany, if someone want to write in german
1 Antwort
- vor 1 JahrzehntBeste Antwort
lets say you borrowed a bag of rice from me after depositing 5 cans of mushroom (collateral) with a promise that you return my bag of rice and then i will give you back your can of mushroom. You sold that 1 bag of rice for 2 euros and expecting that price will fall and you will buy at cheaper price 1 euros, return the rice, take back your cans of mushroom and make a profit of 1 euro. But if rice price goes to 5 euros, your loss is 3 euros and i may ask to post more cans of mushroom because my rice price has gone up and if you do not return my rice then i should have enough cans of mushroom to recover value of rice.
similarly AIG sold protection at a price, but due to increase in default risk, protection price went up and AIG had to book losses in their account and also post additional collateral.
