Module: | MODULE B: RISK MANAGEMENT
Q344: Scenario: A senior forex dealer in the Front Office identifies a fleeting, highly profitable arbitrage opportunity in the USD/INR market. However, executing the required trade volume would immediately breach their individually assigned Daylight Open Position Limit.
Under standard risk management protocols, what is the correct course of action for the dealer?
✅ Correct Answer: C
The correct answer is C. Treasury risk limits, such as the Daylight Open Position Limit, are absolute hard stops designed to protect the bank's capital.
Profitability never justifies a limit breach.
A dealer cannot exceed their assigned limits under any circumstances without explicit, prior approval from the designated competent authority (which could be the Head of Treasury, CRO, or ALCO, depending on the bank's delegation matrix). Option A is a severe violation of risk protocols; post-facto reporting of a limit breach is a disciplinary offense.
Option B describes "trade splitting" or "parking," which is a fraudulent practice to bypass limit monitoring.
Option D is incorrect because verbal offsets are not legally binding and do not reduce the official risk exposure calculated by the Mid-Office.
Profitability never justifies a limit breach.
A dealer cannot exceed their assigned limits under any circumstances without explicit, prior approval from the designated competent authority (which could be the Head of Treasury, CRO, or ALCO, depending on the bank's delegation matrix). Option A is a severe violation of risk protocols; post-facto reporting of a limit breach is a disciplinary offense.
Option B describes "trade splitting" or "parking," which is a fraudulent practice to bypass limit monitoring.
Option D is incorrect because verbal offsets are not legally binding and do not reduce the official risk exposure calculated by the Mid-Office.