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FRM Part II · FRM Exam Part II · Future Value and Exposure

A bank's portfolio with a counterparty has a mark-to-market value of +USD 30 million to the bank. The CSA has a threshold of USD 10 million posted by the counterparty, a minimum transfer amount of USD 1 million, and no initial margin. Assuming collateral has been called and received exactly according to the CSA, and ignoring the margin period of risk, what is the bank's exposure?

The bank's exposure is USD 10 million. The counterparty must post collateral only for the amount above the threshold, so 30 minus 10 equals 20 is received. The uncollateralised remainder is 30 minus 20, which equals the threshold of 10 million.

  1. AUSD 0
  2. BUSD 10 millionCorrect
  3. CUSD 20 million
  4. DUSD 30 million

Explanation

Collateral required is the exposure above the threshold: 30 - 10 = 20, which is transferred (above the MTA). Remaining exposure = 30 - 20 = USD 10 million, equal to the threshold. Distractor 20 confuses collateral with exposure.

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