Funding Exposure vs. Credit Exposure

[Shau_2207]

@David Harper CFA FRM ,

Can you please help me explain this?

As I understand the it should be default of the counterparty increase funding cost when margin is not posted the party with positive exposure has to fund the amount of loss. Similarly in the second sentence.

 

[yLam4028]

@David Harper CFA FRM ,

Can you please help me explain this?

As I understand the it should be default of the counterparty increase funding cost when margin is not posted the party with positive exposure has to fund the amount of loss. Similarly in the second sentence.

when we are talking about funding cost/benefit think about a hedging position with your current contract e.g. when you are long something you are also hedging with another short position at the same time. This seems to be how GARP / Gregory write about funding.

When you have positive exposure your counterparty owns you money. however this also implies your hedging position is losing money and hence you need to pay more margins. in that case it would be a funding cost.

however when you have negative exposure your hedging position is bringing in extra income. its a funding benefit.

 

[Shau_2207]

Yes right ! My bad Thanks for clarification