Financial Risk Manager Part 2
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A junior risk analyst at a consulting firm is reviewing the operational arrangements of bilateral netting and central clearing of derivative trades. The analyst examines the following bilateral trades of three firms:
- Firm 1's exposure to Firm 2: AUD 90 million
- Firm 2's exposure to Firm 1: AUD 60 million
- Firm 1's exposure to Firm 3: AUD 12 million
- Firm 3's exposure to Firm 1: AUD 70 million
- Firm 2's exposure to Firm 3: AUD 57 million
- Firm 3's exposure to Firm 2: AUD 0 million
Which of the following statements is correct?
A junior risk analyst at a consulting firm is reviewing the operational arrangements of bilateral netting and central clearing of derivative trades. The analyst examines the following bilateral trades of three firms:
- Firm 1's exposure to Firm 2: AUD 90 million
- Firm 2's exposure to Firm 1: AUD 60 million
- Firm 1's exposure to Firm 3: AUD 12 million
- Firm 3's exposure to Firm 1: AUD 70 million
- Firm 2's exposure to Firm 3: AUD 57 million
- Firm 3's exposure to Firm 2: AUD 0 million
Which of the following statements is correct?
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A
Under bilateral netting, Firm 1's net exposure is AUD 28 million.
B
Under bilateral netting, Firm 2's net exposure is AUD 27 million.
C
Under central clearing, Firm 3's net exposure is AUD 0 million.
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