Module: | MODULE B: RISK MANAGEMENT
Q343: Consider the following statements regarding the role and independence of the Mid-Office in a bank's treasury operations:
1. The Mid-Office is responsible for independent risk measurement, limit monitoring, and mark-to-market (MTM) valuation of the treasury portfolio.
2. To ensure strict segregation of duties, the Mid-Office must be structurally independent from the Front Office and typically reports directly to the Chief Risk Officer (CRO).
3. The Mid-Office acts as the primary execution engine for all high-value foreign exchange and money market trades.
2. To ensure strict segregation of duties, the Mid-Office must be structurally independent from the Front Office and typically reports directly to the Chief Risk Officer (CRO).
3. The Mid-Office acts as the primary execution engine for all high-value foreign exchange and money market trades.
✅ Correct Answer: A
The correct answer is A. Statement 1 is correct: The Mid-Office serves as the independent risk management arm of the treasury, responsible for calculating Value at Risk (VaR), monitoring dealer limits, and independently computing the daily Mark-to-Market (MTM) valuations.
Statement 2 is correct: To maintain the integrity of the risk framework and prevent unauthorized trading or fraud, there must be strict segregation of duties.
The Mid-Office must be completely independent of the Front Office (the deal-making arm) and typically reports to the Chief Risk Officer (CRO) or Head of Risk Management.
Statement 3 is incorrect: The Mid-Office NEVER executes trades.
Executing foreign exchange and money market transactions is strictly the domain of the Front Office dealers.
Statement 2 is correct: To maintain the integrity of the risk framework and prevent unauthorized trading or fraud, there must be strict segregation of duties.
The Mid-Office must be completely independent of the Front Office (the deal-making arm) and typically reports to the Chief Risk Officer (CRO) or Head of Risk Management.
Statement 3 is incorrect: The Mid-Office NEVER executes trades.
Executing foreign exchange and money market transactions is strictly the domain of the Front Office dealers.