Merrill Lynch's CFXO

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The hybrid credit markets saw a new entrant in May with the release of the first foreign exchange collateralised debt obligation (CFXO). Like its forerunners, the equity default swap (EDS) CDO and the collateralised commodity obligation (CCO), Merrill Lynch's CFXO applies a credit derivative framework to a non-credit asset - in this case foreign exchange.

Merrill's CFXO is composed of a basket of 10 currency pairs selected from a pool of 25-30 liquid G10 and emerging market currencies by the

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