New Enroll in RBI Grade B New Batch - Starts on May 21

    Question

    Bilateral netting sometimes seen in news, it refers to

    A Protection provided to both parties in trade Correct Answer Incorrect Answer
    B Net security to the depositors against losses in bank Correct Answer Incorrect Answer
    C Agreement among counter parties to offset claims against each other to determine a single net payment obligation Correct Answer Incorrect Answer
    D Credit derivative contracts that enable investors to swap credit risk on a company, country Correct Answer Incorrect Answer

    Solution

    • A bilateral netting agreement enables two counterparties in a financial contract to offset claims against each other to determine a single net payment obligation that is due from one counterparty to the other, meaning that the payables and receivables are netted off. Such a provision would allow companies, especially banks, to set aside far lesser capital based on their net positions rather than gross settlements, where the entire amount due must be covered.

    Practice Next

    Relevant for Exams: