# Question

A bank has the following transaction with a AA-rated corporation

(a) A two-year interest rate swap with a principal of $100 million that is worth $3 million

(b) A nine-month foreign exchange forward contract with a principal of $150 million that is worth –$5 million

(c) An long position in a six-month option on gold with a principal of $50 million that is worth $7 million

What is the capital requirement under Basel I if there is no netting? What difference does it make if the netting amendment applies? What is the capital required under Basel II when the standardized approach is used?

(a) A two-year interest rate swap with a principal of $100 million that is worth $3 million

(b) A nine-month foreign exchange forward contract with a principal of $150 million that is worth –$5 million

(c) An long position in a six-month option on gold with a principal of $50 million that is worth $7 million

What is the capital requirement under Basel I if there is no netting? What difference does it make if the netting amendment applies? What is the capital required under Basel II when the standardized approach is used?

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