FRM Part I · FRM Exam Part I · Exchanges and OTC Markets
Two dealers have a bilateral CSA with zero threshold, zero minimum transfer amount, and daily margining. Dealer X's portfolio with Dealer Y has a net value of +$20 million to X at today's close. X is currently holding $14 million of collateral posted by Y. What happens?
Y must post an additional $6 million. With zero threshold and zero minimum transfer amount, collateral must equal the $20 million exposure, and X already holds $14 million, so the margin call is the $6 million shortfall.
- AY must post an additional $6 million to XCorrect
- BX must return $6 million to Y
- CY must post an additional $20 million to X
- DNo transfer occurs because collateral is already held
Explanation
Required collateral equals exposure of $20 million less threshold of zero. X holds $14 million, so the call is 20 - 14 = $6 million from Y. Posting the full $20 million would ignore collateral already held.
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
- A trader places a sell order on an exchange with the instruction: 'Sell 10 contracts if the price falls to 92.00 or lower, then execute at t…
- Bank A and Bank B have three outstanding OTC derivative trades under a single legally enforceable master netting agreement. The mark-to-mark…
- Two banks, Bank A and Bank B, have three OTC derivative trades between them under a single ISDA Master Agreement with a legally enforceable …
- Dealer D has two netting sets with Counterparty C. Set 1 has net value +USD 30 million to D; Set 2 has net value -USD 20 million to D. Set 1…
- Which feature most clearly distinguishes an exchange-traded derivative from a traditional bilateral over-the-counter (OTC) derivative?
- A dealer has three OTC derivative trades with a single counterparty, with current values to the dealer of +USD 18 million, −USD 11 million a…