nayizhenfeng

 

3、The use of straight-through processing (STP) of over-the-counter derivatives transactions is expected to:

decrease risk in the financial markets.

integrate the trading, reporting, and control functions.

require increased manual processing of transaction and confirmation processing.

A) I, II, and III. 

B) II and III only. 

C) I and II only. 

D) II only.

nayizhenfeng

 

The correct answer is C

 

The use of STP integrates trading, reporting, and control functions, and includes the replacement of outdated manual systems with automated trade and confirmation matching. It should ultimately reduce market-wide risk by enabling firms to improve their management of trading volume, reducing trade disputes, increasing netting capabilities, and eliminating redundant operations.

nayizhenfeng

 

4、According to the Report of the Counterparty Risk Management Policy Group (CRMPG) II, the overriding guiding principle for its recommendations concerning complex financial products is:

A) sound judgment and experience.

B) accountability. 

C) standardization of procedures. 

D) the use of sophisticated financial models.

nayizhenfeng

 

The correct answer is A

 

According to the CRMPG II, the overriding guiding principle is that management must rely on sound judgment based on familiarity and knowledge of the fundamentals of risk management.

nayizhenfeng

 

5、Which of the following risks is most likely to be greater when selling a complex product to a retail investor instead of an institutional investor?

A) Liquidity risk. 

B) Reputational risk.  

C) Legal risk.  

D) Credit risk. 

nayizhenfeng

 

The correct answer is B

 

Selling complex products to retail investors increases the potential for reputational risks. Retail investors are generally less sophisticated than institutional investors and may not fully understand the risks involved with a complex product. Retail investors who buy a product that “blows up” are more likely to blame the selling institution, thus damaging its reputation. Note that other risks may also increase, but reputational risk is the biggest factor that changes when dealing with retail investors.

nayizhenfeng

 

AIM 4: List and discuss supervisory challenges identified by the CRMPG.

1、The supervisory challenges identified by the CRMPG II are designed to:

A) encourage the creation of rules to govern potential contingencies a firm may face. 

B) foster a balance between rules that protect clients and ones that prevent them from achieving their financial goals.

C) eliminate overlap between financial statement and regulatory accounting.

D) create clear lines of demarcation between regulatory jurisdictions.

nayizhenfeng

 

The correct answer is B

 

One of the key tenets of the four supervisory challenges identified by the CRMPG II is to balance the responsibilities of institutions and clients so that regulations do not impede the ability of an institution to meet a client’s financial goals. Other tenets encourage a principle-based supervisory approach as opposed to a rules approach and encourage uniform accounting practices as well as coordination among regulators in different jurisdictions.

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