Financial Risk Manager Part 2

Get started today

Ultimate access to all questions.

Explanation:

With a netting agreement, the exposure is the sum of all position market values, but bounded below by zero. Exposure = $\max(32 + 12 - 16 - 8, 0) = \max(20, 0) = 20$ million USD. Without a netting agreement, the exposure is the sum of the positive market values only. Exposure = $32 + 12 = 44$ million USD.

Explanation:

Comments (0)

No comments yet.

Question A financial institution has four open derivative positions with an investment company. A description of the positions and their current market values are displayed in the table below:

Position Exposure (USD)
Long swaptions 32 million
Long credit default swaps 12 million
Long currency derivatives -16 million
Long futures contracts -8 million

If the investment company defaults, what would be the loss to the financial institution if netting is used compared to the loss if netting is not used?

Position	Exposure (USD)
Long swaptions	32 million
Long credit default swaps	12 million
Long currency derivatives	-16 million
Long futures contracts	-8 million

Exam-Like

Community

UAnonymous

Last updated: July 5, 2026 at 07:29

Loss of USD 20 million if netting is used; loss of USD 24 million if netting is not used

Loss of USD 20 million if netting is used; loss of USD 44 million if netting is not used

Loss of USD 24 million if netting is used; loss of USD 32 million if netting is not used

Loss of USD 20 million if netting is used; loss of USD 24 million if netting is not used