FRM Part I · FRM Exam Part I · Central Clearing
A dealer has a bilateral CSA with a hedge fund. The CSA has a threshold of $5 million for the hedge fund, a minimum transfer amount of $1 million, and no independent amount. The portfolio's mark-to-market value to the dealer is $18.4 million, and the hedge fund has already posted $11 million. Assuming the call is made and the rounding rules are ignored, what is the margin call amount?
The margin call is $2.4 million. Required collateral equals exposure less the $5 million threshold, or $13.4 million. The hedge fund already posted $11 million, so an additional $2.4 million is due, which exceeds the $1 million minimum transfer amount and therefore must be transferred.
- A$2.4 millionCorrect
- B$7.4 million
- C$13.4 million
- D$18.4 million
Explanation
Required collateral = exposure minus threshold = 18.4 - 5 = $13.4 million. Already held is $11 million, so the call is 13.4 - 11 = $2.4 million, which exceeds the $1 million minimum transfer amount. $13.4 million forgets the collateral already posted, and $7.4 million nets the exposure with the posted amount but still ignores the threshold.
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