Financial Risk Manager Part 2
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In a situation where a clearinghouse is employed to oversee the repo transactions between ABC Co. and Repo Co., and fraudulent documentation is subsequently detected, necessitating the netting of obligations between these two companies, what would be the most appropriate type of netting to apply in this case? Additionally, what other potential outcomes could result from using this particular netting technique?
In a situation where a clearinghouse is employed to oversee the repo transactions between ABC Co. and Repo Co., and fraudulent documentation is subsequently detected, necessitating the netting of obligations between these two companies, what would be the most appropriate type of netting to apply in this case? Additionally, what other potential outcomes could result from using this particular netting technique?
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A
Payment netting would be used, which would reduce ABC's counterparty risk, but this risk would be transferred to other creditors outside the clearinghouse.
8.3%
B
Payment netting would be used, which would reduce Repo Co.'s counterparty risk, but ABC's counterparty risk would be increased.
16.7%
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