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

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 amount of $1 million, and Q has already posted $22 million. Calls are rounded only by the minimum transfer amount rule (a transfer occurs only if the shortfall is at least $1 million). What is the call amount from P to Q, and what residual uncollateralized exposure remains after the transfer?

The call is $3 million and the residual uncollateralized exposure is $5 million. Required collateral is exposure minus threshold (30 - 5 = 25); with $22 million posted, the $3 million shortfall exceeds the minimum transfer amount, and the threshold remains uncovered.

  1. A$3 million call; $5 million residualCorrect
  2. B$8 million call; $0 residual
  3. C$3 million call; $8 million residual
  4. D$0 call; $8 million residual

Explanation

Required collateral = 30 - 5 threshold = $25 million. Q holds posted $22 million, so the shortfall is $3 million, above the $1 million minimum, so it is called. After transfer, residual exposure equals the $5 million threshold. Option $8 million ignores the threshold effect on the required amount.

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