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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 CSA specifies a threshold of zero and a minimum transfer amount (MTA) of USD 500,000. Today the net mark-to-market exposure of the bank to the fund is USD 3.2 million, and the bank currently holds USD 2.9 million of collateral. How much additional collateral will the bank be able to call?

The bank cannot call any additional collateral. The shortfall is USD 300,000 (3.2m minus 2.9m), which is below the USD 500,000 minimum transfer amount, so no transfer is required until the shortfall exceeds that level.

  1. AUSD 0, because the call is below the MTACorrect
  2. BUSD 300,000
  3. CUSD 500,000
  4. DUSD 3.2 million

Explanation

The required additional collateral is 3.2 - 2.9 = USD 0.3 million. Because this is below the MTA of USD 500,000, no transfer takes place. Calling USD 300,000 ignores the MTA, and calling USD 500,000 rounds up to the MTA, which is not how it works.

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