medium · FRM Part 2 Credit Risk
Which statement regarding 'Right-Way Risk' (RWR) and Credit Valuation Adjustment (CVA) is most accurate?
- CVA calculations should always exclude RWR entirely so that the resulting charge stays conservative.
- RWR suggests that the bank is effectively 'over-insured' against counterparty default in the states that matter.
- RWR only becomes relevant when the counterparty in question is a sovereign-linked entity or agency.
- RWR disappears entirely once the bank begins requiring daily variation margin exchange from its counterparty.
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