FRM Part I · FRM Exam Part I · Exchanges and OTC Markets
Under a bilateral CSA, Bank X has a net mark-to-market liability of USD 18 million to Bank Y. The CSA has a threshold of USD 5 million for Bank X and a minimum transfer amount of USD 1 million. No collateral has been posted so far. What collateral must Bank X post?
Bank X must post USD 13 million. The threshold is the uncollateralized exposure allowed before collateral is required, so the call equals the USD 18 million exposure minus the USD 5 million threshold, and it exceeds the USD 1 million minimum transfer amount.
- AUSD 18 million
- BUSD 5 million
- CUSD 13 millionCorrect
- DUSD 23 million
Explanation
Required collateral is exposure above the threshold: 18 - 5 = USD 13 million, which exceeds the USD 1 million minimum transfer amount, so the call is made. Posting 18 ignores the threshold; 5 confuses threshold with the call; 23 adds the threshold wrongly.
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