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

Which feature of a CSA's collateral terms most directly reduces the risk that exposure grows between the last collateral call and close-out after a default?

More frequent margin calls, giving a shorter margin period of risk, most directly reduce the risk. They shrink the time over which exposure can move without collateral, whereas higher thresholds, larger minimum transfer amounts or less frequent margining leave more exposure uncovered.

  1. AA higher threshold amount
  2. BA larger minimum transfer amount
  3. CA less frequent margining schedule
  4. DMore frequent margin calls with a shorter margin periodCorrect

Explanation

Exposure can change during the margin period of risk, so more frequent calls shorten the gap and limit uncollateralized movement. Higher thresholds, larger minimum transfer amounts and less frequent margining each allow more uncollateralized exposure.

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