BankA, which isAAArated, trades a 5-year interest rate swap (semi-annual payments) with Bank B, which is rated BBB. Because of Bank B's poor credit rating, Bank Ais concerned about the 5-year exposure it is going to run because of the swap deal. Which of the following measures help mitigate Bank A's credit exposure to Bank B?
Ⅰ.Negotiate a CSAwith Bank B and efficiently manage the collateral management system
Ⅱ.Execute the swap deal as a reset swap wherein the swap will be marked to market every six months
Ⅲ.Execute the swap deal with a break clause in the third year
Ⅳ.Decrease the frequency of coupon payments from semi-annual to annual
A) I only
B) IV only
C) I, II and III
D) I, II, III and IV
解析：Decreasing the frequency of payments increases the credit exposure rather than decreasing it. This is because, more the time for the next payment, greater are the chances for the market rates to move in one counterparty's favor, thereby increasing its credit exposure to the other counterparty.
Rarecom is a specialist company that only trades derivatives on rare commodities. Rarecom and a handful of other firms, all of whom have large notional outstanding contracts with Rarecom, dominate the market for such derivatives. Rarecom management would like to mitigate its overall counterparty exposure, with the goal of reducing it to almost zero. Which of the following methods, if implemented, could best achieve this goal?
A) Ensuring that sufficient collateral is posted by counterparties.
B) Diversifying among counterparties.
C) Cross-product netting on a single counterparty basis.
D) Purchasing credit derivatives, such as credit default swaps.
解析：Counterparty exposure, in theory, can be almost completely neutralized as long as a sufficient amount of high quality collateral, such as cash or short-term investment grade government bonds, is held against it. If the counterparty were to default, the holder of an open derivative contract with exposure to that counterparty would be allowed to receive the collateral. Cross-product netting would only reduce the exposure to one of the counterparties, and purchasing credit derivatives would replace the counterparty risk from the individual counterparties with counterparty risk from the institution who wrote the CDS.