Explanation:
During trade compression, it is possible to compress contracts as long as they are related to the same reference credit.
Therefore,
Net contract notional value = Long $300k + Short $800k + Short $250k + Long $900k = Long $150k
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Q.5439 An analyst has the following information on a bank's derivatives trades.
| Counterparty | Reference Credit | Notional ($) | Bank’s Position |
|---|---|---|---|
| 4G Inc. | Blue Seal Int. | 300,000 | Long protection |
| Lights Advisors | Blue Seal Int. | 800,000 | Short protection |
| Air London | Blue Seal Int. | 250,000 | Short protection |
| Texas Electric Plc. | Blue Seal Int. | 900,000 | Long protection |
What is the bank's net contract notional value?
A
$1,200,000
B
$950,000
C
$150,000
D
$900,000
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