Skip to content

FRM Part II · FRM Exam Part II · Counterparty Risk and Beyond

A bank and a counterparty trade under a CSA with a USD 2 million threshold for the counterparty, and a minimum transfer amount of USD 0.5 million. The net portfolio value to the bank is now USD 7.3 million, and the counterparty has posted USD 4.6 million of collateral. Assuming no independent amount, what is the margin call the bank can make?

The bank can call USD 0.7 million. Required collateral is exposure minus threshold, 7.3 - 2.0 = 5.3 million. Subtracting the 4.6 million already posted leaves 0.7 million, which is above the 0.5 million minimum transfer amount, so the call is valid.

  1. AUSD 0.7 millionCorrect
  2. BUSD 2.7 million
  3. CUSD 5.3 million
  4. DUSD 0.2 million

Explanation

Required collateral = exposure - threshold = 7.3 - 2.0 = 5.3 million. Already held is 4.6, so the call is 0.7 million, which exceeds the 0.5 million minimum transfer amount, so it can be made. USD 5.3 million ignores collateral already held.

Did you get it right without looking?

One question tells you little. A timed set on Counterparty Risk and Beyond shows your real accuracy, how long you take and where you lose marks.

Practise Counterparty Risk and BeyondFree diagnostic mock

More Counterparty Risk and Beyond questions