Skip to content

FRM Part II · FRM Exam Part II · Netting, Close-out and Related Aspects

A bank trades with a hedge fund under an ISDA Master Agreement with a Credit Support Annex (CSA). The portfolio's net mark-to-market value to the bank is +USD 12 million. The CSA has a zero threshold, a minimum transfer amount of USD 0.5 million, and the bank currently holds USD 10 million of cash collateral. What is the call the bank can make?

The bank can call USD 2 million. Required collateral equals the USD 12 million exposure less a zero threshold, and the bank already holds USD 10 million. The USD 2 million shortfall exceeds the USD 0.5 million minimum transfer amount, so the margin call is valid.

  1. AUSD 2 millionCorrect
  2. BUSD 12 million
  3. CUSD 1.5 million
  4. DUSD 0

Explanation

The required collateral is exposure minus threshold: 12 - 0 = USD 12 million. The bank already holds 10, so the shortfall is USD 2 million, which exceeds the USD 0.5 million minimum transfer amount, so the call is valid. Calling USD 12 million ignores collateral already held.

Did you get it right without looking?

One question tells you little. A timed set on Netting, Close-out and Related Aspects shows your real accuracy, how long you take and where you lose marks.

Practise Netting, Close-out and Related AspectsFree diagnostic mock

More Netting, Close-out and Related Aspects questions