Explanation:
The correct order of net exposure per counterparty, from highest to lowest, is determined by calculating the net mark-to-market (MtM) for each counterparty after applying the netting agreements. Here's the breakdown:
For Counterparty P:
$2$8$0$2 + $8 + $0 = $10For Counterparty Q:
$0 as negative netted amount means no exposure)$6$0)$0 + $6 + $0 = $6For Counterparty R:
$0$0)$0)$0 + $0 + $0 = $0For Counterparty S:
$0$3$0$0 + $3 + $0 = $3Thus, the correct sequence of net exposure amounts per counterparty, from highest to lowest, is P ($10), Q ($6), S ($3), and R ($0), which corresponds to option A: P, Q, S, R.
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Four derivative counterparties have established bilateral netting agreements. The table below provides a summary of their bilateral mark-to-market (MtM) trades. Assuming netting agreements are in place for all pairs of counterparties listed, what is the correct ranking of net exposure per counterparty, from highest to lowest?
A
P, Q, S, R
B
Q, R, S, P
C
R, Q, P, S
D
S, P, Q, R