PRMIA 8010 Exam - Topic 1 Question 20 Discussion

Actual exam question for PRMIA's 8010 exam

Question #: 20
Topic #: 1

[All 8010 Questions]

The risk that a counterparty fails to deliver its obligation upon settlement while having received the leg owed to it is called:

APre-settlement risk

BCredit risk

CReplacement risk

DSettlement risk

Show Suggested Answer

Suggested Answer: D

Choice 'd' is the correct answer. Settlement risk, as the name suggests, arises upon settlement when one of the parties delivers its obligation under the transaction and the other does not. Consider a EUR/USD FX forward contract maturing in a month. At maturity, one of the parties will deliver EURs and the other USDs. If one party fails to deliver, then it constitutes a very large risk to the other party. This risk is much larger than pre-settlement risk, because the amount at risk is the entire notional and not just the replacement value. Of course, settlement risk exists for a very short period of time, no more than a number or hours or a day.

There is no such thing as 'replacement risk', and credit risk is a larger category of which settlement risks is one component. Settlement risk is the most appropriate answer.

by Dorthy at Oct 28, 2022, 09:20 PM

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Lauryn

4 months ago

Pre-settlement risk is another term, but not the right answer here.

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Tonette

4 months ago

Wait, are we sure about that? Sounds off.

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Glendora

4 months ago

Totally agree, it's settlement risk for sure.

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Lorrine

5 months ago

I thought it was credit risk?

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Georgeanna

5 months ago

That's definitely called settlement risk.

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Lucy

5 months ago

I definitely recall practicing a question on replacement risk, but I don't think that's the answer here. Maybe it's settlement risk?

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Juan

5 months ago

I feel like this question is tricky. I want to say it's pre-settlement risk, but that doesn't sound quite right.

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Reuben

5 months ago

I remember discussing credit risk, but that seems more about the overall risk of default rather than this specific situation.

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Claudio

5 months ago

I think this might be related to settlement risk, but I'm not entirely sure. We did cover something similar in class.

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Miesha

5 months ago

Okay, let's see... If the field is deleted, does that mean the data is just gone forever? Or is it still stored somewhere?

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Trina

5 months ago

I'm not entirely sure about this topic, but I'll give it my best shot. I'll read through the options and try to eliminate the ones that seem incorrect.

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Tora

5 months ago

I'm a little confused by this question. Wouldn't it be better to try searching for the Contact record first, and then look for the Note record associated with it? Searching for "run" seems like it might be too broad.

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