Let's analyze the exposures (from the perspective of the firm being owed money):
Bilateral Netting:
- Between Firm 1 and 2: Firm 1 is owed 90 and owes 60. Net = Firm 1 is owed 30.
- Between Firm 1 and 3: Firm 1 is owed 12 and owes 70. Net = Firm 3 is owed 58.
- Between Firm 2 and 3: Firm 2 is owed 57 and owes 0. Net = Firm 2 is owed 57.
Firm 1’s total net exposure under bilateral netting = 30 + 0 = 30 million (Option A is incorrect).
Firm 2’s total net exposure under bilateral netting = 0 + 57 = 57 million (Option B is incorrect).
Central Clearing (CCP):
Under central clearing, all positions are netted against the CCP.
- Firm 1 net position: +30 (from F2) - 58 (to F3) = -28. Firm 1 owes the CCP 28 million.
- Firm 2 net position: -30 (to F1) + 57 (from F3) = +27. Firm 2 is owed 27 million by the CCP.
- Firm 3 net position: +58 (from F1) - 57 (to F2) = +1. Firm 3 is owed 1 million by the CCP. (Option C is incorrect).
The CCP’s exposure is to the firms that owe it money. Since Firm 1 is the only firm that owes money to the CCP (AUD 28 million), the CCP's total net exposure is AUD 28 million. Option D is correct.
