easy · FRM Part 1 Financial Markets and Products
What is the difference between 'variation margin' and 'initial margin' regarding their role in credit risk?
- Variation margin is only required of parties who are hedging, while initial margin applies only to speculative market participants.
- Initial margin is designed to prevent market losses from occurring in a position, while variation margin covers losses after they happen.
- There is no real difference at all; both terms simply describe the exact same pool of cash held in a margin account at the exchange.
- Variation margin settles already incurred losses daily, while initial margin covers potential future losses during a default close-out.
Sign up free to see the explanation and track your rank →
More FRM Part 1 Financial Markets and Products practice
- If the oil market shifts from backwardation to a persistent contango, which of the followi
- If at the time of delivery S_1 = $72 and F_1 = $74, while the hedge was entered at F_0 =
- A trader creates an iron condor by selling a 90 put, buying… — What is the maximum loss fo
- An American put option is deep in the money. Why might it be optimal to exercise this opti
- The variation margin is the cash amount that is:
- What is the maximum possible loss for an investor who writes (shorts) a naked call option?
- If the standard deviation of futures price changes (σ_F) is much larger than the standard
- Which exotic option would a speculator use if they believe a stock will experience a massi