CDP Documentation & Clearing Infrastructure

Question 1

Which document establishes the master terms and conditions governing all OTC derivatives transactions between two counterparties?

Accepted Answer

ISDA Master Agreement

Answer

The ISDA Master Agreement is the industry-standard legal document that governs OTC derivatives transactions, providing a single agreement framework for all trades between counterparties.

Question 2

Which of the following is NOT a standard component of a typical ISDA documentation package?

Accepted Answer

Exchange Membership Agreement

Answer

An ISDA package consists of the Master Agreement, Schedule, Confirmations, and an optional Credit Support Annex; an Exchange Membership Agreement belongs to an exchange-traded environment.

Question 3

Under an ISDA Master Agreement, 'close-out netting' upon a counterparty default allows the non-defaulting party to:

Accepted Answer

Net all outstanding transactions to a single payment obligation

Answer

Close-out netting terminates all outstanding transactions and calculates a single net payment, significantly reducing the credit exposure of the non-defaulting party.

Question 4

A 'Confirmation' in OTC derivatives documentation primarily serves to:

Accepted Answer

Document the specific economic terms of each individual trade

Answer

A Confirmation records the specific economic terms of each trade (notional, maturity, rate, settlement dates) and supplements the overarching ISDA Master Agreement.

Question 5

The 'Schedule' to an ISDA Master Agreement primarily serves to:

Accepted Answer

Elect and modify standard provisions of the Master Agreement

Answer

The Schedule allows counterparties to customize the standard ISDA Master Agreement by electing specific provisions and adding bespoke terms suited to their commercial and legal relationship.

CDP - Certified Derivatives Professional Practice Test

CDP - Certified Derivatives Professional Practice Test

CDP Documentation & Clearing Infrastructure