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Answer: CNY 0
## Explanation **A is correct.** Additional collateral (C) required for posting can be explained from the mark-to-market value of collateral posted (X), mark-to-market value of net exposure (E), the threshold (K), and the minimum transfer amount (MTA) as follows: (i) Collateral call (C) can be made if: E > (K + MTA + X) (ii) The collateral amount required: C = E – K – X, and the amount is positive if (E – K – X) > MTA, otherwise it is zero. In this example: (K + MTA + X) = 14,000,000 + 2,500,000 + 10,800,000 = 27,300,000 > E = 27,000,000 which corresponds to no collateral call. Thus, A is correct. **B is incorrect.** CNY 1,990,000 = new exposure – original exposure – rounding amount = 27,000,000 – 25,000,000 – 10,000, which is incorrect. **C is incorrect.** CNY 2,000,000 is the difference between the new net exposure and the original net exposure (= 27,000,000 – 25,000,000 = CNY 2,000,000). **D is incorrect.** CNY 2,500,000 is the minimum transfer amount.
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An investment bank has a one-way credit support annex (CSA) on a bilateral transaction with a hedge fund counterparty. Under the terms of the CSA, the mark-to-market value of the transaction forms the basis of the hedge fund's collateral requirements, which are provided below:
| Item | Value (CNY) |
|---|---|
| Mark-to-market value of net exposure | 25,000,000 |
| Mark-to-market value of collateral posted | 10,800,000 |
| Threshold amount | 14,000,000 |
| Minimum transfer amount | 2,500,000 |
| Rounding amount | 10,000 |
Assuming the net exposure increases to CNY 27,000,000 and the mark-to-market value of collateral posted has not changed, how much additional collateral will the hedge fund have to post?
A
CNY 0
B
CNY 1,990,000
C
CNY 2,000,000
D
CNY 2,500,000
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