FRM Part I · FRM Exam Part I · Central Clearing
A dealer has a bilateral OTC swap portfolio with a client under a credit support annex (CSA) with zero threshold and zero minimum transfer amount. The portfolio's value to the dealer rises from USD 8 million to USD 14 million, and the dealer currently holds USD 8 million of collateral. What is the margin call by the dealer to the client?
The dealer calls for USD 6 million. With a zero threshold and no minimum transfer amount, collateral must equal the USD 14 million exposure. Since USD 8 million is already held, the additional variation margin required is the difference, USD 6 million.
- AUSD 6 millionCorrect
- BUSD 14 million
- CUSD 8 million
- DUSD 22 million
Explanation
Required collateral equals exposure of USD 14 million less threshold of zero. The dealer already holds USD 8 million, so it calls for 14 - 8 = USD 6 million. Calling USD 14 million ignores existing collateral.
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