Financial Risk Manager Part 2
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In a situation where a clearinghouse is engaged to facilitate repo transactions between ABC Co. and Repo Co., and fraudulent documentation is discovered, what would be the most appropriate type of netting to apply? Additionally, what potential outcomes might result from using this netting approach?
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.
B
Payment netting would be used, which would reduce Repo Co.'s counterparty risk, but ABC's counterparty risk would be increased.
C
Closeout netting would be used, which would reduce ABC's counterparty risk, but this risk would be transferred to other creditors outside the clearinghouse.
D
Closeout netting would be used, which would reduce Repo Co.'s counterparty risk, but ABC's counterparty risk would be increased.