Explanation:
Based on the description provided:
Key characteristics of the contribution:
Let's analyze the options:
A. Initial margin ❌ - This is collateral posted against specific positions to cover potential losses from that position. It can be returned when positions are closed.
B. Variation margin ❌ - This is daily settlement of gains/losses on positions. It's temporary and settled daily.
C. Default fund contribution ✅ - This is exactly what's described. Default funds (also called guarantee funds or mutualized funds) are contributions from all clearing members that provide a buffer to cover losses from member defaults. These funds cannot be withdrawn while the member remains active.
D. Performance bond ❌ - This is essentially the same as initial margin in futures markets, not a permanent contribution.
The description perfectly matches a default fund contribution, which is a key component of central counterparty risk management.
Ultimate access to all questions.
Q-22. XYZ, a clearinghouse member, has recently contributed funds with its clearinghouse. The funds are designed to give the clearinghouse the ability to meet the financial obligations of any defaulting members. The funds may not be withdrawn by XYZ as long as it remains a member of the clearinghouse. Which of the following amounts best describe XYZ's contribution?
A
Initial margin
B
Variation margin
C
Default fund contribution
D
Performance bond
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