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FRM Part II · FRM Exam Part II · High-level Summary of Basel III Reforms

A bank under review computes CVA capital for a derivatives book. Which transaction is excluded from the scope of the CVA risk capital charge under the revised Basel III framework?

Transactions with a qualifying central counterparty, including client-cleared trades, are excluded from the CVA capital charge. Bilateral OTC derivatives with corporates, hedge funds or sovereigns remain in scope, so the QCCP option is the right answer.

  1. ATransactions with a qualifying central counterparty (QCCP) and client-cleared transactions with a QCCPCorrect
  2. BUncollateralised interest rate swaps with a corporate
  3. CEquity options with a hedge fund counterparty
  4. DCross-currency swaps with a sovereign counterparty

Explanation

Transactions with a qualifying central counterparty are excluded from CVA capital, as are securities financing transactions unless the supervisor determines fair-value losses are material. The other trades are OTC derivatives with bilateral counterparties and are in scope.

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