The full form of CSA is CREDIT SUPPORT ANNEX
What is CSA in relation to finance?
Credit Support Annex is a document (Here a type of surety bond) that defines the terms for providing credit support by the parties in a derivative transaction.
What is a derivative transaction?
A derivative transaction is an agreement between two parties whose value is based on an asset of financial value. For examples stocks, bonds etc.
What are the benefits of CSA?
Credit Support Annex is mainly used by big corporations to avoid loss due to uncertainty in the economy of their home or the country they are engaging with. CSA helps them protect major losses from factors like fluctuation in currency, an increase in the cost of raw material etc.
Why do we need collateral in CSA?
Since the risk of loss is high for both the parties engaging in the trades, the derivative trader provides credit support for their business. This credit support acts as collateral or a guarantee that they can bear the losses in case of unexpected situations.