Skip to content

FRM Part II · FRM Exam Part II · Netting, Close-out and Related Aspects

A risk manager explains why close-out netting differs from ordinary bilateral set-off under general insolvency law. Which statement is most accurate?

Close-out netting ends all transactions upon default and reduces them to one net amount, including future obligations. General set-off usually covers only mutual, matured debts and may be restricted in insolvency, so it gives weaker protection.

  1. AClose-out netting terminates all transactions on default and converts them into a single net amount, whereas general set-off typically applies only to mutual debts already due and may be restricted in insolvencyCorrect
  2. BClose-out netting applies only to payments due on the same day and currency, while set-off covers all future trades
  3. CClose-out netting and set-off are identical and both always survive insolvency in every jurisdiction
  4. DClose-out netting requires the liquidator's consent to be effective, while set-off does not

Explanation

Close-out netting terminates the transactions, values them and produces one net sum. Statutory set-off generally needs mutual, matured claims and may be limited or stayed in insolvency. Payment netting is the same-day, same-currency concept in the distractor.

Did you get it right without looking?

One question tells you little. A timed set on Netting, Close-out and Related Aspects shows your real accuracy, how long you take and where you lose marks.

Practise Netting, Close-out and Related AspectsFree diagnostic mock

More Netting, Close-out and Related Aspects questions