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Answer: d) Potential future exposure (PFE); e.g., $10 million with 95% confidence
A swap **confirmation** is the legal document that records the commercial terms of the transaction. It commonly includes items such as: - day count convention, - payment dates, - fixed or floating rate, - notional amount, - reset dates, - business day conventions. **Potential future exposure (PFE)** is a risk-management measure used to estimate possible future credit exposure; it is **not** a standard term included in the swap confirmation. Therefore, the least likely element is **PFE**.
Author: Manit Arora
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Question-175.3. The confirmation in a swap transaction is LEAST LIKELY to include which of the following elements?
A
a) Day count (basis) convention; e.g., Actual/360
B
b) Payment dates; e.g., Each March 5th and September 5th
C
c) Actual fixed rate; e.g., 5.015% per annum
D
d) Potential future exposure (PFE); e.g., $10 million with 95% confidence
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