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

Bank A has a net mark-to-market exposure of USD 12.0 million to Counterparty B under a CSA. The CSA has a threshold of USD 2.0 million for B, a minimum transfer amount of USD 0.5 million, and A currently holds USD 9.6 million of collateral from B. How much additional collateral can A call?

The required collateral is exposure less threshold, 12.0 minus 2.0, or USD 10.0 million. A holds 9.6 million, so the shortfall is 0.4 million. Because that is under the 0.5 million minimum transfer amount, no call can be made until the shortfall grows.

  1. AUSD 0.4 million, which is below the minimum transfer amount so nothing is transferredCorrect
  2. BUSD 2.4 million
  3. CUSD 10.0 million
  4. DUSD 0.4 million, which A can call immediately

Explanation

Required collateral = exposure minus threshold = 12.0 - 2.0 = 10.0 million. Existing collateral is 9.6 million, so the shortfall is 0.4 million. This is below the 0.5 million minimum transfer amount, so no transfer occurs. Calling 10.0 million ignores existing collateral, and calling 0.4 million ignores the MTA.

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