C4 Risk Management & Mitigation 3

Question 1

What is 'slippage' in cryptocurrency trading and which risk category does it fall under?

Accepted Answer

The difference between expected and executed trade price — market risk

Answer

Slippage is the difference between the anticipated price and the actual execution price, caused by low liquidity or rapid price movement, and is classified as market risk.

Question 2

Which risk mitigation strategy involves using futures or options contracts to offset potential losses in a cryptocurrency portfolio?

Accepted Answer

Hedging

Answer

Hedging uses derivative instruments such as futures or options to create offsetting positions that limit downside exposure in a portfolio.

Question 3

An organization holds Bitcoin and wants to reduce exposure to BTC price volatility without selling. Which approach best achieves this?

Accepted Answer

Shorting BTC futures

Answer

Shorting BTC futures creates a position that profits when BTC falls, offsetting losses in the spot holding without requiring a sale.

Question 4

Which term describes the risk that a counterparty in a cryptocurrency transaction will fail to fulfill their contractual obligation?

Accepted Answer

Counterparty risk

Answer

Counterparty risk is the danger that the other party in a trade, loan, or contract defaults before the transaction is settled.

Question 5

Why is key ceremony documentation important in cryptocurrency risk management?

Accepted Answer

It provides an auditable record of how cryptographic keys were generated and stored

Answer

Key ceremony documentation creates a verifiable, tamper-evident record of private key generation, ensuring accountability and enabling audits of custody procedures.

(C4) CryptoCurrency Certification Consortium Practice Test

(C4) CryptoCurrency Certification Consortium Practice Test

C4 Risk Management & Mitigation 3