Credit derivatives are a useful tool for lenders who want to reduce their exposure to a particular borrower but are unwilling to sell their claims on that borrower. Without actually transferring ownership of the underlying assets, these contracts transfer risk from one counterparty to another....

Interest rate swaps and currency swaps are contracts in which counterparties agree to exchange cash flows according to a pre-arranged formula over a period of time. Since 1985, the federal government has been us-ing such swaps to manage its liabilities in a cost-effective and flexible manner....