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Pre-settlement risk occurs when a transaction is not settled and acounterparty defaults. Assuming we have an FX swap, the second leg or 'far leg' will need to be settled at a contractually fixed rate, defined at the outset of the contract. If the counterparty is in default and there is a Mark-To-Market (MTM) gain on the transaction, from your perspective, then you will not be able to realise the gain.
Say I had a contact with Lehman Bros in which the P&L gain was $10 million (in my favour) when they went bankrupt, even though the contract did not mature for another 2 years. Even though my claim is years away from settling, can I expect them to honour the contract? At the point of bankruptcy, I write off my gain as an unsatisfiable claim.
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∙ 14y ago
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What are the issues adressed in a business transaction?
The transaction is a reliable way of communication or interaction. The only thing is to ensure that the resources of the completion of the transaction may not in itself a risk of fraud or loss leading to one of the parties to the transaction.
Why are mutual funds popular among investor?
Reduce risk, portfolio diversification, low transaction cost
What is meant by operating lease?
Operating Lease is a lease other than finance lease. A leasing transaction wherein the lessor takes the asset risk and the credit risk.
Firms exposed to the risk of interest rate changes may reduce that risk by?
One way to partially reduce that risk is through interest rate hedging activities in the financial futures market. Hedgingmeans to engage in a transaction that partially or fully reduces a prior risk exposure.
What is mortgage default swap?
I think what you are referring to is basically a credit default swap. This is a kind of insurance that the lender of the loan or the mortgage can purchase in order to ensure that the re-payment on the loan will be made in the event that the borrower defaults on the payment. This protects the back and spreads the risk.
What is the difference between transaction risk and economic risk?
Transaction is bank risk
What are the issues adressed in a business transaction?
The transaction is a reliable way of communication or interaction. The only thing is to ensure that the resources of the completion of the transaction may not in itself a risk of fraud or loss leading to one of the parties to the transaction.
The AOPC receives an email notification for a high risk transaction?
True
Does the OPC receive an email notification for a high risk transaction?
false
Why are mutual funds popular among investor?
Reduce risk, portfolio diversification, low transaction cost
What is the meaning of the term Credit Mutual?
The buyer of a credit swap receives credit protection, whereas the seller of the swap guarantees the credit worthiness of the product. By doing this, the risk of default is transferred from the holder of the fixed income security to the seller of the swap. For example, the buyer of a credit swap will be entitled to the par value of the bond by the seller of the swap, should the bond default in its coupon payments.
What is meant by operating lease?
Operating Lease is a lease other than finance lease. A leasing transaction wherein the lessor takes the asset risk and the credit risk.
Definition of operating lease?
Operating Lease is a lease other than finance lease. A leasing transaction wherein the lessor takes the asset risk and the credit risk.
Firms exposed to the risk of interest rate changes may reduce that risk by?
One way to partially reduce that risk is through interest rate hedging activities in the financial futures market. Hedgingmeans to engage in a transaction that partially or fully reduces a prior risk exposure.
What is hedging tools?
Hedging tools are those tools which helps to mitigate the risk in the market. For e.g. Future Contract, Swap, Option etc.
What are the advantages of using special journals by an entity?
There are a few advantages to using special journals. First, the one line entry for each sales transaction is a time saver. Second, only totals being posted and recorded also saves time and reduces the risk of error.
What is probability crm?
CRM stand for composite risk management. The CRM probability indicates whether or not a business transaction will actually take place.
