Financial Technology & Systems Flashcards

In risk management systems, what is the primary function of a Value-at-Risk (VaR) calculation engine?

Answer: To estimate the maximum potential loss over a period at a given confidence level

VaR engines estimate the worst expected loss over a specific time horizon at a defined probability level, such as 99% confidence over one day.

Which technology is primarily used to detect fraudulent transactions in real time by analyzing behavioral patterns?

Answer: Machine learning models trained on historical transaction data

Machine learning models analyze transaction patterns, device fingerprints, and behavioral signals in milliseconds to flag anomalies for review or decline.

What is the role of a 'financial data aggregator' in personal financial management (PFM) applications?

Answer: It collects and normalizes account data from multiple financial institutions into a single view

Financial data aggregators like Plaid or Yodlee collect account balances, transaction history, and holdings from multiple institutions and present them in a unified format.

In automated trading, what is 'alpha decay' in relation to trading signals?

Answer: The diminishing effectiveness of a trading signal as more market participants exploit it

Alpha decay occurs when a trading signal loses its predictive edge as arbitrageurs discover and trade on the same opportunity, eliminating the profit potential.

What distinguishes 'dark pools' from public exchanges in terms of technology and transparency?

Answer: Dark pools do not display pre-trade order information publicly

Dark pools are private trading venues that hide order book information pre-trade, allowing large institutional orders to execute without revealing intentions to the market.

Which cybersecurity framework is most commonly adopted by US financial institutions for managing information security risk?

Answer: NIST Cybersecurity Framework

The NIST Cybersecurity Framework is widely adopted by US financial institutions and endorsed by regulators like the FFIEC as a standard for managing cyber risk.

In financial technology, what is 'regtech' primarily designed to address?

Answer: Using technology to help firms comply with regulatory requirements more efficiently

Regtech uses technologies like AI, big data, and cloud computing to automate compliance processes such as KYC, AML screening, and regulatory reporting.