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PRMIA Exam 8010 Topic 1 Question 7 Discussion

Actual exam question for PRMIA's 8010 exam
Question #: 7
Topic #: 1
[All 8010 Questions]

An investor enters into a 5-year total return swap with Bank A, with the investor paying a fixed rate of 6% annually on a notional value of $100m to the bank and receiving the returns of the S&P500 index with an identical notional value. The swap is reset monthly, ie the payments are exchanged monthly. On Jan 1 of the fourth year, after settling the last month's payments, the bank enters bankruptcy. What is the legal claim that the hedge fund has against the bank in the bankruptcy court?

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Suggested Answer: C

According to ISDA standard definitions, the legal claim for OTC derivatives is the current replacement value of the contract. Therefore Choice 'c' is the correct answer. None of the other choices are correct.


by Alex at May 06, 2022, 10:08 AM

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Mendy
3 days ago
I remember discussing how the legal claims in bankruptcy can depend on the net position of the swap. I think the hedge fund might claim the replacement value.
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Adelle
6 days ago
Hmm, I'm not sure. I'll need to review my notes on mobile testing approaches to decide which one is the best fit here.
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Felix
16 days ago
Hmm, I'm not sure I fully understand what this is asking. The wording is a bit unclear to me. I'll have to think it through step-by-step.
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Denise
16 days ago
Hmm, I'm not totally sure about this one. I'm debating between Environment Planning and Policies Planning. I'll have to think it through carefully.
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Ilona
18 days ago
I think I read something about the structure of coverage affecting costs, but I'm not clear on how it connects to other characteristics.
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