
Explanation:
Let's approach this step-by-step:
$87,000,000$50,000,000= max(0, 87,000,000 - 65,000,000 - 50,000,000) = 0
New net exposure: $110,000,000
New additional collateral required = max(0, Net exposure - Threshold - Collateral posted)
= max(0, 110,000,000 - 65,000,000 - 50,000,000) = $-5,000,000
The difference in collateral required:
-5,000,000
Round to the nearest rounding amount ($10,000):
10`,000 = $-5,000,000
Check if this exceeds the minimum transfer amount:
5,000,000, which is less than the minimum transfer amount of $12`,000,000
Therefore, despite the increase in net exposure, no additional collateral will be required from the hedge fund because the calculated amount doesn't meet the minimum transfer amount.
| Value ($) | |
|---|---|
| Market-to-value of net exposure | 87,000,000 |
| Market-to-value of collateral posted | 50,000,000 |
| Threshold amount | 65,000,000 |
| Minimum transfer amount | 12,000,000 |
| Rounding amount | 10,000 |
How much extra collateral will the hedge fund be required to post if the net exposure rises to $110,000,000 and the mark-to-market value of the posted collateral remains unchanged?
A
$17,000,000
B
$0
C
$33,000,000
D
$40,000,000
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