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Questions and Answers
What is the main purpose of central counterparties (CCPs) in risk management?
What is the main purpose of central counterparties (CCPs) in risk management?
- To minimize settlement risks by netting transactions
- To add a layer of security by taking on the risk of default by either party (correct)
- To increase liquidity requirements
- To conduct investigations on discrepancies in transactions
What is the key characteristic of a net clearing system?
What is the key characteristic of a net clearing system?
- Every transaction is settled individually without offsetting against other transactions
- It increases settlement risks due to lack of netting
- Transactions are batched together to create a net settlement (correct)
- It requires high liquidity for settlement
What is the primary advantage of a gross clearing system?
What is the primary advantage of a gross clearing system?
- Reduces settlement risks due to individual settlement of each transaction
- Allows multiple transactions to stand alone (correct)
- Enables offsetting transactions against each other
- Minimizes liquidity requirements
Which step is NOT involved in the clearing process as mentioned in the text?
Which step is NOT involved in the clearing process as mentioned in the text?
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What does NIBSS do in the payment initiation process?
What does NIBSS do in the payment initiation process?
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In which type of clearing system are transactions settled individually without netting?
In which type of clearing system are transactions settled individually without netting?
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What is a characteristic of bilateral netting?
What is a characteristic of bilateral netting?
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Which type of clearing system batches multiple transactions for net settlement?
Which type of clearing system batches multiple transactions for net settlement?
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What process ensures that every transaction stands alone without offsetting against others?
What process ensures that every transaction stands alone without offsetting against others?
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How does multilateral netting differ from bilateral netting?
How does multilateral netting differ from bilateral netting?
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