Skip to content

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

Banks A and B have the following OTC derivative positions with each other under a legally enforceable netting agreement: three trades with mark-to-market values to Bank A of +USD 40 million, +USD 25 million and -USD 55 million. Bank B has no other exposure to A. What is Bank A's net credit exposure to Bank B, and what is its gross positive exposure?

Net exposure is USD 10 million because 40 plus 25 minus 55 equals 10 under enforceable netting. Gross positive exposure is USD 65 million, the sum of the two positive trades. Adding absolute values to get 120 is not an exposure measure.

  1. ANet exposure USD 10 million; gross positive exposure USD 65 millionCorrect
  2. BNet exposure USD 65 million; gross positive exposure USD 10 million
  3. CNet exposure USD 120 million; gross positive exposure USD 10 million
  4. DNet exposure USD 10 million; gross positive exposure USD 120 million

Explanation

Gross positive exposure is the sum of positive values: 40 + 25 = 65. With enforceable netting, exposure is the net value: 40 + 25 - 55 = 10. Option 2 swaps the two measures; the options using 120 add the absolute values of all trades, which is not a credit exposure.

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.

Practise Exchanges and OTC MarketsFree diagnostic mock

More Exchanges and OTC Markets questions