The off-balance-sheet items of a bank consist of assets shown in Table A. The Add-on factors are listed in Table B. What is the credit equivalent amount (CEA) if netting is not allowed? What is the CEA if netting is allowed? If we assume the RWA for all on-balance-sheet items is $1 billion, what are the required capitals for this bank with netting and without netting?

Table A

Position	Principal	Current Value
3-year interest rate swap	1,000 million	30 million
4-year foreign exchange rate forward	500 million	50 million
6-year crude oil swap	100 million	-15 million

Table B

Remaining Maturity (yrs)	Interest rate	Exchange Rate and Gold	Equity	Metals except gold	Other Commodities
<1	0	1	6	7	10
1 to 5	0.5	5	8	7	12
>5	1.5	7.5	10	6	15

Answer rating: 100% (QA)

The credit equivalent amount CEA is the value of an onbalancesheet item that would produce the same ... View the full answer