Skip to content

FRM Part II · FRM Exam Part II · Counterparty Risk and Beyond

Under post-crisis OTC derivatives reforms, which of the following uncleared derivatives requirements is most directly intended to reduce procyclicality and wrong-way funding stress while protecting against potential future exposure after a counterparty default?

Segregated initial margin calibrated to a stressed period best fits the aim. It covers potential future exposure during the close-out period after a default, is protected from the poster's insolvency, and limits procyclical margin spikes. Variation margin and trade reporting address current exposure and transparency, not this risk.

  1. AMandatory posting of variation margin only, settled monthly
  2. BExchange of initial margin, segregated from the posting party's estate, calibrated to a stressed periodCorrect
  3. CIncreasing the risk weights on CCP default fund exposures
  4. DRequiring all trades to be reported to a trade repository

Explanation

Initial margin covers potential future exposure during the close-out period, and segregation protects it if the poster defaults. Calibration to a stressed period dampens procyclicality. Variation margin covers current exposure only, and trade reporting improves transparency but does not cover losses.

Did you get it right without looking?

One question tells you little. A timed set on Counterparty Risk and Beyond shows your real accuracy, how long you take and where you lose marks.

Practise Counterparty Risk and BeyondFree diagnostic mock

More Counterparty Risk and Beyond questions