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    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.

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