Explanation:
A haircut of 2%, means that for every unit of a security posted as collateral, only 98% of credit (“valuation percentage”) will be given. In this case, collateral with a market value of $81.63 million will be required, i.e., $80 / (1 - 0.02) = $81.63
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Q.1898 Suppose there is a transaction between two parties - X and Y - where party X makes a mark-to-market profit and party Y makes a mark-to-market loss. As such, Y is expected to post collateral worth $80 million. If a haircut of 2% applies, how much will Y post?
A
$100 million
B
$82 million
C
$78 million
D
$81.63 million
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