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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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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 the difference between a riskless principal transaction and an agency transaction?
In a riskless principal transaction, the broker buys and sells securities on behalf of a client without taking on any risk, while in an agency transaction, the broker acts as an intermediary to facilitate a trade between a buyer and a seller without taking ownership of the securities.
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 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
What is a balance of month swap?
A balance of month swap is a financial derivative transaction where two parties agree to exchange cash flows based on the difference between interest rates, typically over a specified period. It often involves the exchange of fixed interest payments for floating ones, calculated on a notional principal amount. This type of swap is commonly used by institutions to manage interest rate risk or to speculate on future interest rate movements. The "balance of month" aspect refers to the timing of cash flows, which are settled at the end of the month.
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.
Why are mutual funds popular among investor?
Reduce risk, portfolio diversification, low transaction cost
What is the difference between a riskless principal transaction and an agency transaction?
In a riskless principal transaction, the broker buys and sells securities on behalf of a client without taking on any risk, while in an agency transaction, the broker acts as an intermediary to facilitate a trade between a buyer and a seller without taking ownership of the securities.
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 role of FAS subsystem of vision plus in a transaction?
The FAS subsystem in Vision Plus is responsible for handling financial authorization requests during a transaction. It verifies the transaction details, performs risk assessments, and approves or declines the transaction based on predefined rules. This subsystem plays a crucial role in ensuring the security and integrity of the transaction process.
