easy · Frm Part 2 Risk & Investment Management
A large multi-strategy fund uses an 'Internal Settlement Account' to move cash between different sub-strategies before reconciling it with the prime broker at the end of the week.
What is the primary operational danger identified in the Barings case related to this practice?
- It violates the Basel III Liquidity Coverage Ratio (LCR) requirement for 30-day cash buffers.
- The fund might lose interest income if the cash sits in a non-interest-bearing settlement account.
- The 'Error Account' or internal settlement account can be used to hide losses and fictitious trades if not reconciled independently and daily.
- Counterparty credit risk on the bank holding the settlement account.
Sign up free to see the explanation and track your rank →
More Frm Part 2 Risk & Investment Management practice
- A hedge fund strategy captures frequent small gains but suff… — This risk profile is most
- A risk manager is evaluating an 'Illiquid Asset' (e.g., Priv… — Why is the 'Autocorrelatio
- An active manager has an Information Coefficient (IC) of 0.06 and a breadth (BR) of 400 in
- If the reported volatility is 10% and the first-order autocorrelation (φ) of returns is 0.
- In the context of Liquidity Risk, the 'Denominator Effect' refers to which of the followin
- If the manager effectively doubles the breadth (BR) of the strategy while maintaining the
- According to factor theory, why does an asset that pays off during 'bad times' (such as a
- If a position is removed from a portfolio, the change in total VaR is exactly equal to its