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Current Exposure Method -CEM

What does Current Exposure Method -CEM mean?

A method to compute the cost of a default that may take place within a swap agreement. Banks and Financial Institutions use current exposure method to measure credit risk on a swap or other derivatives. It is a regulatory requirements under Basel.

Futures Knowledge Explains Current Exposure Method -CEM

According to Basel II norms, banks have to use the Current Exposure Method (CEM). This methodology has two components: the Current Exposure which is the current mark-to market value and a Potential Future Exposure that is the most probable amount of exposure expected to occur over the remaining life of the contract. This method is based on application of statistical tools.

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