Estimate the capital required under Basel I for a bank that has the following transactions with another bank. Assume no netting.

(a) A two-year forward contract on a foreign currency, currently worth $2 million, to buy foreign currency worth $50 million

(b) A long position in a six-month option on the S&P 500. The principal is

$20 million and the current value is $4 million.

(c) A two-year swap involving oil. The principal is $30 million and the current value of the swap is –$5 million.

What difference does it make if the netting amendment applies?

AppendixLO1