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    Question

    Vivek is a foreign exchange dealer. He enters into a forex position and forgets to square the over bought position in a foreign currency. Which of the following risk is Vivek exposed to here?

    A foreign exchange risk Correct Answer Incorrect Answer
    B settlement risk Correct Answer Incorrect Answer
    C liquidity risk Correct Answer Incorrect Answer
    D operational risk Correct Answer Incorrect Answer
    E credit risk Correct Answer Incorrect Answer

    Solution

    operational risk is the risk of loss arising from various types of human or technical error. Here the human error of forgetting to square off the position has exposed Vivek to risk of loss in the forex contract. Note - Operational risk has some form of link between credit and market risks. An operational problem with a business transaction could trigger a credit or market risk.

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