A junior risk analyst at a consulting firm is evaluating two operational setups for handling derivative trades: bilateral netting and central clearing. The analyst examines the exposures between three companies in the scenario of bilateral trades:

Company 1's exposure to Company 2: AUD 90 million

Company 2's exposure to Company 1: AUD 60 million

Company 1's exposure to Company 3: AUD 12 million

Company 3's exposure to Company 1: AUD 70 million

Company 2's exposure to Company 3: AUD 57 million

Company 3's exposure to Company 2: AUD 0 million

Exam-Like

Under bilateral netting, Firm 1's net exposure is AUD 28 million.

11.8%

Under bilateral netting, Firm 2's net exposure is AUD 27 million.

17.6%

Under central clearing, Firm 3's net exposure is AUD O million.

41.2%

Under central clearing, the CcP's net exposure is AUD 28 million.

29.4%

Financial Risk Manager Part 2