FRM Part I · FRM Exam Part I · Central Clearing
A bank has a bilateral netting set with a counterparty with a current net value of $8 million to the bank. Under a CSA, the counterparty has a threshold of $5 million and a minimum transfer amount of $0.5 million. Assuming the counterparty has posted no collateral so far and no initial margin applies, how much collateral will the bank call at the next margin date?
The bank calls $3 million. The threshold of $5 million is the exposure left uncollateralized, so only the excess of the $8 million exposure over the threshold is called, and since $3 million exceeds the $0.5 million minimum transfer amount, the transfer is made.
- A$8 million
- B$3 millionCorrect
- C$5 million
- D$13 million
Explanation
Collateral is required only for exposure above the threshold: 8 - 5 = $3 million. This exceeds the $0.5 million minimum transfer, so the call is made. Calling $8 million ignores the threshold, while $5 million is the uncollateralized amount rather than the call.
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