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FRM Part I · FRM Exam Part I · Exchanges and OTC Markets

Bank X and Bank Y have a netting set with a net mark-to-market value of USD 20 million in favor of Bank X. Their CSA has a threshold of USD 5 million for Bank Y, a minimum transfer amount of USD 0.5 million, and no independent amount. Collateral currently held by Bank X is USD 10 million. What call for additional collateral should Bank X make?

Bank X should call USD 5 million. Required collateral equals net exposure less the threshold, 20 minus 5 equals 15 million. Since 10 million is already held, the shortfall is 5 million, which exceeds the 0.5 million minimum transfer amount, so the call is valid.

  1. AUSD 5 millionCorrect
  2. BUSD 10 million
  3. CUSD 15 million
  4. DUSD 20 million

Explanation

Required collateral = exposure minus threshold = 20 - 5 = USD 15 million. Bank X already holds 10, so the additional call is 15 - 10 = USD 5 million, which exceeds the 0.5 minimum transfer amount. Calling 10 ignores the existing collateral being offset against the full exposure incorrectly, and 15 ignores existing holdings.

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