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Answer: None of the above
A collateralization agreement with a **modest, non-zero threshold** does **not eliminate** counterparty risk; it only reduces it. Some exposure can still remain due to the threshold, delays in margining, haircuts, and market moves. It also does not eliminate: - **Market risk**, because the derivative’s value still changes with market prices. - **Operational risk**, because errors, delays, documentation issues, and settlement problems can still occur. Therefore, the correct answer is **None of the above**.
Author: Manit Arora
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Question-146.3 An over-the-counter (OTC) bilateral derivatives contract that employs a collateralization agreement and a modest, non-zero threshold eliminates which risk(s)?
A
Counterparty risk
B
Market risk
C
Operational risk
D
None of the above
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