12.5 A four-year interest rate swap currently has a negative value to a financial institution. Is the financial institution exposed to credit risk on the transaction? Explain your answer. How would the capital requirement be calculated under Basel I?
12.6 Estimate the capital required under Basel I for a bank that has the following transactions with a corporation. Assume no netting.
a. A nine-year interest rate swap with a notional principal of $250 million and a current market value of ?$2 million.
b. A four-year interest rate swap with a notional principal of $100 million and a current value of
$3.5 million.
c. A six-month derivative on a commodity with a principal of $50 million that is currently worth
$1 million.
