If you have to write something which involves the use of many complex terms, such as a science paper etc. you should try to use the terms in a way that they are easy to understand; the context is important. See the following for an example.
“When it comes to interest rate swaps, risk management is the main focus of any experienced clearing house. SwapClear is a clearing house that has developed risk management techniques that have been adopted throughout the OTC clearing industry. Risk management and default management are the keys to finding a london clearing house that is ideal for you interest rate swapping needs. The question remains, how is risk managed most effectively?
Here are some of the risk management techniques that SwapClear is known for:
Careful Criteria for Selecting Members
One of the most effective ways to manage risk involves having clear and strict requirements that are used to select clearing members. Clearing members have to maintain their credentials and continue to demonstrate their abilities over time. This is a precautionary technique that helps to manage risk.
Cover Potential Loss
A risk management technique that SwapClear developed involves collecting an initial margin. This initial margin is designed to help cover the cost of losses. However, this is only a precautionary method for the event of default. The amount of the initial margin is calculated using extensive market data and is an accurate monetary value.
What Is Variation Margin?
When it comes to understanding interest rate swaps, it is important to know the meaning of variation margins. A swap rate contract will fluctuate each day and you will gain and lose sporadically. The amount that you have made or lost each day is known as the variation margin and you are informed of this calculation daily. The ability to collect variation margin helps to eliminate risk immensely. This results in smaller sums and less obligation immediately.
Defaults are not likely, but managing default accounts has taken on a new level of detail due to the 2008 case involving Lehman. The closeout of the Lehman account has resulted in a default management guideline that works effectively to help manage risk.
Large Default Fund
One of the last techniques for managing risk involves the existence of a default fund. All financial obligations are left to the clearing member. However, there is a default fund that exists to make sure that all interest rate swaps are upheld in any event. This means that default risk is almost completely removed from the investor. Clients even have the ability to transfer their value in to ensure that double margins do not occur.”