Quality Control & Operational Risk November 2003. Agenda. Introductions Outline of a Derivative Transaction Quality Control in Financial Services – where are we in relation to other industries War Story. Outline of a Derivative Transaction. Example:
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Ford Motor company (FMC) wishes to begin manufacturing in an Eastern European country and does not want exposure to currency risk. FMC issues a bond for HUF 20bn paying a fixed HUF rate, then swaps the HUF currency risk into USD with an investment bank
Broker Dealer assumes
floating ccy risk
Option to call in 5 years
Confirm economic data
Perform margin procedures
Settle any cashflows
What is the cost of confirming the first decimal incorrectly
How soon will a mistake be identified
Are the right ISDA terms used and agreed – what is the cost of an incorrect calculation agent
Unfortunately there are multiple stories. Tonight we can talk about AIB.