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ACI operations > Chapter 10 Risk Management, controls, compliance, documentation > Flashcards

Chapter 10 Risk Management, controls, compliance, documentation Flashcards

1
Q

Credit risk

A

The risk that a client will not be able to pay you back

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2
Q

Market risk

A

The risk that the market value of trading positions will adversely influenced by changes in prices and/or interest rates

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3
Q

Liquidity risk

A

The risk that the bank is not able to fulfill its short term obligations

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4
Q

Head of risk management should report to..

A

the board of directors

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5
Q

Types of market risk

A
  1. Interest rate risk
  2. Equity risk
  3. FX risk
  4. Commodity risk
    (5. Liquidity risk)
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6
Q

Market risk - important activities

A
  1. Setting limits (for FO-staff)
  2. Position keeping (Back office)
  3. Valuation
  4. Reporting
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7
Q

FX Risk

A
  1. MidOffice is responsible for position keeping and report to regulator
  2. Net open position report includes: A&L in FX, Fx forwards and swaps, other future cash flows in FX
  3. Spot dealers are responsibles for managing the position
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8
Q

Types of liquidity risk

A
  • Availability risk: not able to borrow funds at reasonable rates
  • Market liquidity risk: not able to sell assets fast enough
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9
Q

Ladder maturity reports

A
  1. A&L in time buckets

2. Estimation of withdrawal of non-maturing liabilities (such as current accounts)

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10
Q

High Quality Liquid Assets

A

Portfolio of securitues that can easily be sold immediately

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11
Q

Credit risk - Lending risk

A

Risk that a borrower cannot pay interest or repay the principal sum

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12
Q

Credit risk - Settlement risk

A

Any amount that is due to be under a contract reveived untill the receipt is confirmed

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13
Q

Credit risk - Pre-settlement risk (replacement counterparty credit risk)

A

The contract needs to be replaced in the market at unfavourable conditions

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14
Q

Credit limit

A

Limit on the size of the obligations of a particular counterparty towards the bank

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15
Q

Settlement limit

A

Sets a maximum to the delivery risk that a bank runs with a specific counterparty

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16
Q

FX limit (counterparty credit risk limit)

A

Sets a maximum to the exposure as a result of FX forwards or derivatives

17
Q

Payment netting

A

A means to reduce settlement risk by offsetting payments

18
Q

Contractual netting (portfolio compression)

A

Combining transactions into 1 contract to reduce counterparty credit risk, balannce sheet volume, required capital and settlement risk

19
Q

Multilateral netting

A
  • CCP becomes counterpart Excluding credit risk by using a margin system
20
Q

Initial margin

A

Minimum cash reserve

21
Q

Variation margin (daily margining)

A

Daily settlement of profit and loss

22
Q

Maintanance margin

A

Paying a margin if the balance of the account is lower that a pre-agreed percentage of the initial margin

23
Q

Collateral

A

A pledge that acts as a security in the event of default of counterparty

24
Q

Types of collateral

A
  1. Cash/ non-cash collateral
  2. Own currency/ foreign currency
  3. Investment grade / non-investment grade
25
Q

Haircut

A

% deduction from the market value of the collateral

26
Q

Margining

A

Daily adjustment of the collateral to the value of a claim

27
Q

Types of operational risk

A
  1. Organizational structure
  2. Computer systems
  3. Human conduct
  4. External factors
28
Q

Front-office staff may never

A
  1. Amend/send confirmations
  2. Send payment instructions
  3. Have responsibility or influence over operations personnel
29
Q

Back-office staff may never

A
  1. Transact deals
  2. Give advice to clients
  3. Amend deal tickets
30
Q

ISDA

A

Master agreement for derivatives

31
Q

GMSLA

A

Master agreement for securities lending transactions

32
Q

GMRA

A

Master agreement for repurchase agreements (Repo’s)

33
Q

IFXCO

A

Master agreement FX

ACI operations (11 decks)

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