FRM Part I · FRM Exam Part I · Exchanges and OTC Markets
Bank A and Bank B have three OTC derivative trades between them under one legally enforceable master netting agreement. The mark-to-market values to Bank A are +$12 million, -$7 million, and +$5 million. Ignoring collateral, what is Bank A's credit exposure to Bank B after close-out netting?
Bank A's exposure is $10 million. With an enforceable master netting agreement, positive and negative trade values are summed (12 - 7 + 5), giving one net claim rather than the $17 million gross sum of the positive-value trades.
- A$10 millionCorrect
- B$17 million
- C$12 million
- D$5 million
Explanation
Under close-out netting the values are summed: 12 - 7 + 5 = $10 million, a net amount owed to Bank A. Option $17 million adds only the positive trades and ignores netting. Option $12 million counts only the largest trade.
Did you get it right without looking?
One question tells you little. A timed set on Exchanges and OTC Markets shows your real accuracy, how long you take and where you lose marks.
More Exchanges and OTC Markets questions
- Two dealers have a bilateral CSA with zero threshold, zero minimum transfer amount, and daily margining. Dealer X's portfolio with Dealer Y …
- Which statement best describes how the notional amount outstanding of OTC derivatives relates to the credit exposure of the market's partici…
- Banks A and B have the following OTC derivative positions with each other under a legally enforceable netting agreement: three trades with m…
- Under a bilateral CSA, Bank P has a net exposure of $30 million to Bank Q. The CSA has a threshold of $5 million for Q, a minimum transfer a…
- A trader places a sell stop order at 48.00 on a futures contract currently trading at 50.00. Which statement best describes how the order be…
- Under a bilateral CSA, Bank X has a net mark-to-market liability of USD 18 million to Bank Y. The CSA has a threshold of USD 5 million for B…