Q.2995 The following table shows a portfolio of three derivatives (in EUR million) possessed by a bank with a particular counterparty: | Transaction | Principal $L_i$ | Current Value $V_i$ | |---------------------------------|-----------------|---------------------| | 2-year interest rate swap | 1000 | 95 | | 5-year foreign exchange forward | 1000 | −35 | | 8-month option on a stock | 700 | 80 | Calculate the net replacement ratio. | Financial Risk Manager Part 2 Quiz - LeetQuiz

Explanation:

Recall that:

\text{NRR} = \frac{\max(\sum_{i=1}^{N} V_i, 0)}{\sum_{i=1}^{N} \max(V_i, 0)}

The current exposure with netting (the numerator) is computed as:

$`$ 95` + 80 - 35 = 140

The current exposure without netting (the denominator) is computed as: $`$95` + 0 + 80 = 175

Therefore:

\text{NRR} = \frac{140}{175} = 0.8

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Q.2995 The following table shows a portfolio of three derivatives (in EUR million) possessed by a bank with a particular counterparty:

Transaction Principal $L_i$ Current Value $V_i$
2-year interest rate swap 1000 95
5-year foreign exchange forward 1000 −35
8-month option on a stock 700 80

Calculate the net replacement ratio.

Transaction	Principal $L_i$	Current Value $V_i$
2-year interest rate swap	1000	95
5-year foreign exchange forward	1000	−35
8-month option on a stock	700	80

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Last updated: July 5, 2026 at 07:07

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