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Clearing & Settlement Operations: Compliance, Reconciliation, and Currency Exchange Quiz

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Questions and Answers

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?

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?

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?

Resolution of Disputes (B) Signup and view all the answers

What does NIBSS do in the payment initiation process?

Validates transaction details including fund availability and transaction authenticity (C) Signup and view all the answers

In which type of clearing system are transactions settled individually without netting?

Gross Clearing System (A) Signup and view all the answers

What is a characteristic of bilateral netting?

It reduces transaction settlement risks by offsetting obligations between two parties (D) Signup and view all the answers

Which type of clearing system batches multiple transactions for net settlement?

Multilateral Netting System (D) Signup and view all the answers

What process ensures that every transaction stands alone without offsetting against others?

Gross Clearing System (B) Signup and view all the answers

How does multilateral netting differ from bilateral netting?

Bilateral netting involves offsetting obligations between multiple parties. (C) Signup and view all the answers

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