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FRM Part II · FRM Exam Part II · Margin (Collateral) and Settlement

Bank A and Bank B have a CSA with a threshold of USD 2 million for each party, a minimum transfer amount (MTA) of USD 0.5 million, and no independent amount. The net portfolio value is USD 5.3 million in favor of Bank A. Bank B has previously posted USD 2.6 million of collateral. What is the margin call that Bank A will make today?

The required collateral is the exposure of 5.3 million less the 2 million threshold, or 3.3 million. Bank A already holds 2.6 million, so the call is 0.7 million. This exceeds the 0.5 million minimum transfer amount, so the call is made.

  1. AUSD 0.7 millionCorrect
  2. BUSD 3.3 million
  3. CUSD 2.7 million
  4. DUSD 0 because the amount is below the MTA

Explanation

Required collateral = exposure minus threshold = 5.3 - 2.0 = 3.3 million. Less the 2.6 million already held, the call is 0.7 million, which exceeds the 0.5 million MTA, so the transfer occurs. The 3.3 million option ignores collateral already posted.

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