Replacement Cost answers a simple question: if the counterparty defaults today, how much does the institution lose? It is the net mark-to-market value of all trades in the netting set after deducting
Collateral reduces exposure in SA-CCR, but its recognised value is adjusted before it enters the Replacement Cost calculation. Three checks apply in sequence: Material
Positive Correlation, FX mismatc
Collateral reduces exposure, but not at full face value. A haircut is applied to each collateral item to account for the risk that its value may fall before it can be liquidated. Regulatory tables pro
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