Derivatives Level 3 (IOC) – Quiz 08

Last Updated: June 2024

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CISI – Derivatives Level 3 (IOC) Quiz 08 is completed –
understand the differences between initial and variation margin: • marking to market • offsetting long and short positions • when paid
understand the differences between initial and variation margin: • marking to market • offsetting long and short positions • when paid
understand the nature and use of offsets for spread/spot month margining: • purpose of offsets • what is spot month margin • purpose of spot month margins • purpose of spread margins
understand why the clearing house might call intra-day margin: • purpose of intra-day margin • when is intra-day margin paid
know methods of initial margining including SPAN: • use of delta • use of SPAN
know methods of margining for centrally cleared OTC products and their implications: • how exposure is calculated • what margins are applied • how and when margin payments are made
understand how a firm deals with margin payments for its own positions and for its clients’ positions through its books: • use of house accounts • use of client segregated accounts • use of client non-segregated / pooled accounts
understand the difference between the clearing house’s margin and that of the broker and the collection / payment process: • amounts paid by clearing member and its clients • flow of margin
know the definition, purpose and uses of collateral and the major types of acceptable collateral (cash versus non-cash)
understand the significance of credit and initial margin lines
understand the mechanisms of collateral management: • Valuation and pricing • Credit Support Annex (CSA) • One-way CSAs • Threshold amounts • Haircuts • Minimum Transfer Amount
understand price limits / circuit breakers and position limits and the effects of their application: • price limits • who imposes limits • purpose of price and position limits • action in the event of breach
understand the purpose of the Exchange Delivery Settlement Price (EDSP) and the factors affecting it: • purpose of EDSP • auction process • factors included in calculating the EDSP value • reasons for exchange to set the EDSP
understand the differences between cash settlement and physically delivered contracts and the final payment process: • what is cash settlement • what is physical delivery • factors used in ascertaining the invoice amount • who calculates the invoice amount • differences between financial and commodity products
understand the importance and implications of the delivery of open contracts at expiry and the significance of the short position: • physical versus cash delivery • financials versus commodities • avoidance of delivery – reasons and methods • advantages and disadvantages of cash delivery • asset delivery via the clearing house • relevance of first notice day, last notice day and delivery day or period

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