CDP Documentation & Clearing Infrastructure 2

Question 1

The Credit Support Annex (CSA) primarily governs which aspect of an OTC derivatives relationship?

Accepted Answer

The posting and return of collateral to mitigate credit exposure

Answer

The payment of option premiums at trade inception

Answer

The settlement procedure for physically delivered contracts

Answer

The reporting of trades to regulatory trade repositories

Question 2

In a CSA, the 'Independent Amount' is functionally equivalent to:

Accepted Answer

Initial margin covering potential future exposure

Answer

Net current exposure after portfolio netting

Answer

Variation margin reflecting daily mark-to-market changes

Answer

The threshold below which no collateral transfer is required

Question 3

'Variation Margin' under a CSA is exchanged to cover:

Accepted Answer

Changes in the current mark-to-market value of the derivatives portfolio

Answer

Potential future exposure over the remaining life of outstanding trades

Answer

Fixed transaction costs and brokerage fees for each trade

Answer

Regulatory capital charges imposed on the dealer counterparty

Question 4

A 'Threshold' in a CSA represents:

Accepted Answer

The exposure level below which no collateral transfer is required

Answer

The maximum amount of collateral that can be posted at any one time

Answer

The minimum size of a single collateral transfer

Answer

The haircut percentage applied to non-cash collateral assets

Question 5

Under the BCBS-IOSCO margin requirements for uncleared OTC derivatives, which counterparties are mandated to exchange both initial margin and variation margin?

Accepted Answer

Financial entities above specified aggregate notional thresholds

Answer

Only end-users with documented hedging needs

Answer

Sovereign wealth funds and central banks only

Answer

All counterparties to any OTC derivative regardless of size

Question 6

A 'haircut' applied to non-cash collateral in a CSA means that:

Accepted Answer

The collateral's market value is discounted for margin credit purposes

Answer

A fee is charged for each business day the collateral is held

Answer

Interest accrues on the posted collateral at the haircut rate

Answer

The collateral must be returned after a maximum holding period

Question 7

The 'Minimum Transfer Amount' (MTA) in a CSA is primarily designed to:

Accepted Answer

Avoid operational burdens from very small collateral calls

Answer

Set the maximum collateral transferable on any single business day

Answer

Define which currencies are eligible as collateral

Answer

Limit the rehypothecation of posted collateral assets