Which of the following is NOT true in respect of bilateral close out netting:

Which of the following is NOT true in respect of bilateral close out netting:

A. The net amount due is immediately receivable or payable

B. All transactions are immediately closed out upon the occurrence of a credit event for either of the counterparties

C. All transactions are netted against each other

D. Transactions are separated by transaction type and immediately settled separately at each’s replacement value

View Answer

Answer: D

Explanation:

Choice ‘b’, Choice ‘c’ and Choice ‘a’ correctly describe a bilateral close out netting as recommended by the ISDA. However Choice ‘d’ is not correct as it suggests individual settlement of transactions without netting which is the whole pointof bilateral close out netting.