A standard contract that governs all derivative trades between two parties and enables close-out netting. The ISDA Master Agreement is the usual form.
Where you will meet it
Master agreement comes up in 16 learning outcome notes across the FRM syllabus.
A few of them:
Exchanges and OTC Markets FRM Part I · Financial markets and products
“Close-out netting, the form that matters for credit risk, works under a master agreement such as the ISDAMaster Agreement.”
Credit Risk Transfer Mechanisms FRM Part I · Foundations of risk management
“Close-out netting combines positive and negative values under one enforceable master agreement into a single net claim.”
Derivatives FRM Part II · Credit risk measurement and management
“Historically OTC trades were bilateral, documented under an ISDA agreement and exposed each side to the other.”
Exchanges and OTC Markets FRM Part I · Financial markets and products
“Under a credit support annex to the ISDA master, the party whose net position is negative posts collateral, usually daily, to cover the other side's mark-to-market exposure.”
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