The paper is the continuation of the text published in "Bank i Kredyt" 3/2001, which presented derivative credit instruments, their definition and basic types, as well as their role in credit risk management. The current text opens with the description of the most important - in the author's opinion - areas of application of these instruments and their advantage over the traditional methods of credit risk management. In particular, the methods of reducing credit risk through the application of credit derivatives are discussed, as well as their portfolio applications and their role in securing liquidity and managing the cost of financing.

The second part of the text presents the problems and dangers involved in employing derivative credit instruments. There are three issues at focus: the impact of those instruments upon other types of risk assumed by financial institutions, the difficulties resulting from the asymmetry of information in the financial markets and finally, the possibility of these instruments being exploited in competitive clashes. The final section deals with the reasons behind the rapid increase in the trading of derivative credit instruments, and the structure of the market. Conditions for further development are also discussed, such as centralised trading and better access to information necessary to evaluate risk properly.