Financial Risk Manager Part 2
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Ultimate access to all questions.
A bank wants to reduce its operating expenses and considers hiring a third-party service provider to offer additional loan origination and credit services to some of the bank's customers. The bank's legal department has begun negotiating the terms of a contract with the provider. Which of the following describes the most appropriate set of due diligence actions for the bank to take before signing the contract?
A
The bank should audit the service provider's operational processes and also give the service provider the similar right to audit the bank's processes.
B
The bank should purchase insurance to cover potential losses resulting from the provider's services and should require that the provider deposit collateral with the bank to mitigate performance risk.
C
The bank should determine the compensation structure for the provider's sales representatives and ensure that it incentivizes their productivity through a high proportion of variable compensation.
D
The bank should define specific events that are considered a default under the contract and give the provider an opportunity to resolve a default before terminating the contract.