CMFAS RES 2B Derivatives Dealing Practices & Skills question: stress test requirements raise a CMS licence holder's capital and liquidity burden

CMFAS RES 2BDerivatives Dealing Practices & Skills

Which pairings of situation to risk type are CORRECT? (a) A representative trading gold futures must watch the US dollar, because instruments correlated with his position can affect the trade: correlation risk. (b) A government imposes exchange controls and prices of instruments linked to that country move: political or legal risk. (c) New stress test requirements raise a CMS licence holder's capital and liquidity burden: regulatory risk. (d) Several large institutions hold the same exposure, one fails and the rest fail with it: capital risk.

A (b), (c) and (d) only
B (a), (b), (c) and (d)
C (a), (b) and (c) only
D (a) and (d) only

Show the answer and explanation

Answer: C. (a), (b) and (c) only

RES 2B 6.7.2.1 defines correlation risk and uses the gold and US dollar illustration, 6.7.2.2 defines political and legal risk including exchange controls, and 6.7.7 gives increased stress test requirements as the example of regulatory risk. Institutions failing together is interconnected risk under 6.7.8, which on a larger scale is systemic risk; capital risk in 6.7.3 is about a client's principal.

Common mistake

Contagion between institutions is interconnected risk. Capital risk is about one account losing its principal.

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According to the RES 2B study guide, a CMS licence holder managing market risk should always consider which of the following?A representative is long a commodity futures contract with a stop-loss at 1,800. Overnight, adverse news breaks and the next trade in the market prints at 1,720, with no trades in between. Which statements are correct?When deciding whether a previous conflict-of-interest disclosure still suffices, FAA-G08 as summarised in the RES 2B study guide directs the dealer to consider which of the following?

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Original study material mapped to the public CMFAS RES 2B syllabus. Unofficial, not endorsed by MAS or IBF. Verify figures and rules against current guidance before relying on them.