Finastra Assessment Test Finastra Assessment Treasury and Capital Markets 3 — Questions and Answers
Question 1: In Finastra's FX trading module, what distinguishes a 'Tom-Next' swap from a standard spot transaction?
- Tom-Next settles one day after tomorrow while spot settles in two business days
- Tom-Next rolls a position from tomorrow to the next business day, while spot settles T+2 (Correct answer)
- Tom-Next involves two currency legs; spot involves only one
- Tom-Next applies only to exotic currency pairs
Correct answer: Tom-Next rolls a position from tomorrow to the next business day, while spot settles T+2
A Tom-Next swap is used to roll a position maturing tomorrow (T+1) forward to the next business day (T+2), effectively extending the settlement date.
Question 2: Which risk metric does Finastra's Fusion Risk use to capture the potential loss from simultaneous default of a counterparty and adverse market movement?
- Wrong-Way Risk (WWR) (Correct answer)
- Marginal Expected Shortfall (MES)
- Incremental Risk Charge (IRC)
- Stressed Value-at-Risk (SVaR)
Correct answer: Wrong-Way Risk (WWR)
Wrong-Way Risk arises when counterparty exposure increases at the same time as the counterparty's credit quality deteriorates, compounding potential loss.
Question 3: In capital markets, a 'reverse repo' transaction from the perspective of the cash provider means:
- The cash provider sells securities and agrees to repurchase them at a higher price
- The cash provider buys securities and agrees to resell them at a specified future price (Correct answer)
- The cash provider exchanges fixed coupons for floating coupons
- The cash provider lends securities in exchange for cash collateral
Correct answer: The cash provider buys securities and agrees to resell them at a specified future price
In a reverse repo, the cash provider purchases securities temporarily, earning the repo rate, and returns them at maturity at a pre-agreed price.
Question 4: Finastra's Fusion Treasury uses 'shadow accounting' primarily to:
- Record off-balance-sheet derivatives at fair value for internal reporting
- Mirror ledger postings in a secondary ledger for parallel reporting or IFRS 9 compliance (Correct answer)
- Track unauthorized trading positions flagged by compliance
- Generate deferred tax liability entries automatically
Correct answer: Mirror ledger postings in a secondary ledger for parallel reporting or IFRS 9 compliance
Shadow accounting runs a parallel ledger that mirrors the primary accounting entries, enabling dual reporting under different standards such as GAAP and IFRS 9.
Question 5: What is the primary purpose of a 'collateral optimization' engine within Finastra's securities finance module?
- To maximize the number of collateral substitutions per day
- To allocate the cheapest eligible collateral across obligations while meeting all eligibility criteria (Correct answer)
- To automatically margin-call counterparties when thresholds are breached
- To compress bilateral OTC derivative portfolios
Correct answer: To allocate the cheapest eligible collateral across obligations while meeting all eligibility criteria
Collateral optimization selects the least expensive eligible assets to post as collateral, reducing the cost of funding and freeing up high-quality liquid assets.
Question 6: Which regulatory framework requires Finastra clients to report OTC derivative trades to a trade repository?
- UCITS IV
- EMIR / Dodd-Frank Title VII (Correct answer)
- MiFID II Best Execution only
- Basel IV Pillar 1
Correct answer: EMIR / Dodd-Frank Title VII
EMIR in Europe and Dodd-Frank Title VII in the US mandate trade reporting of OTC derivatives to approved trade repositories to increase market transparency.
Question 7: In Finastra's deal processing workflow, what is the function of a 'confirmation matching' step?
- Automatically novating trades to a central counterparty
- Verifying that both counterparties agree on the economic terms of a trade before settlement (Correct answer)
- Calculating the mark-to-market value for margin purposes
- Assigning a unique trade identifier for regulatory reporting
Correct answer: Verifying that both counterparties agree on the economic terms of a trade before settlement
Confirmation matching ensures both parties have identical records of trade terms, reducing settlement failures and operational risk.
Finastra Assessment Test Finastra Assessment Treasury and Capital Markets 3
In Finastra's FX trading module, what distinguishes a 'Tom-Next' swap from a standard spot transaction?