A bank has three uncollateralized transactions with a counterparty worth +$10 million, ?$20 million and +$25 million. A netting agreement is in place. What is the maximum loss if the counterparty defaults today
A. $15 million
B. $35 million
C. $20 million
D. Zero
A
The netting agreement means that the three transactions are considered to be a single transaction. The net value of the transactions to the bank is 10?20+25 or $15 million. This is the maximum amount that could be lost if the counterparty defaults today.
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