FRM Part II · FRM Exam Part II · Credit Value Adjustment
A bank has a netting set with a counterparty whose mark-to-market is +USD 20 million to the bank. The CSA has a threshold of USD 4 million for the counterparty, a minimum transfer amount of zero, and no independent amount. Assuming the collateral is posted in full at the current valuation, what is the bank's residual exposure at that date?
The residual exposure is USD 4 million. The counterparty must post collateral only for the amount above the threshold, so it posts USD 16 million of the USD 20 million exposure, leaving the USD 4 million threshold uncollateralised.
- AUSD 4 millionCorrect
- BUSD 16 million
- CUSD 20 million
- DUSD 0
Explanation
Collateral required equals exposure above the threshold: 20 - 4 = 16 million. Residual exposure = 20 - 16 = 4 million, which is the threshold. Choosing 16 confuses the collateral amount with the uncollateralised exposure.
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