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Bilateral Netting

Definition:

Bilateral netting - the consolidation of all swap agreements between two counterparties into one master agreement. The result is that if one counterparty bankrupts, that counterparty cannot seek to collect on any swaps that are in-the-money to them while at the same time refusing to pay out on any that are out-of-the-money. Instead, the master agreement sets out that in this event all swaps between the two counterparties will be netted; only then will the bankrupt company receive money, and then only if they are net in-the-money.

Investing Essentials


Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University

Term of the Day

Residual method

A method of allocating the purchase price for the acquisition of another firm among the acquired assets.

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