Banking · Financial Derivatives & Documentation
When documenting OTC Interest Rate Swaps and Credit Default Swaps, banks typically insist on using the ISDA Master Agreement. Which function best describes its role in mitigating risk?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1It ensures that the notional principal of all swaps must be fully collateralized with cash at the time of trade execution.
- 2It establishes a single, legally enforceable, close-out netting provision across all derivative transactions with that specific counterparty.✓
- 3It standardizes the calculation method for the interest rate and credit spread of all future swaps.
- 4It guarantees that the counterparty's national regulator will approve the execution of the swap.
Correct answer
It establishes a single, legally enforceable, close-out netting provision across all derivative transactions with that specific counterparty.
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