Skip to content

FRM Part II · FRM Exam Part II · Tokenization and Financial Market Inefficiencies

A bank's treasury team is evaluating a tokenized representation of a money market fund share recorded on a distributed ledger. Which description best captures what tokenization means in this context?

Tokenization represents claims on an asset as digital tokens on a programmable ledger, allowing transfer and record-keeping on one platform. It differs from unbacked crypto assets because the token is linked to an underlying claim, and it does not imply loss of legal title.

  1. ARepresenting ownership claims on an asset as digital tokens on a programmable ledger, so that transfer and record-keeping occur on the same platformCorrect
  2. BConverting a financial asset into an unbacked crypto asset whose value is not linked to any underlying claim
  3. CReplacing the legal title to an asset with a purely informal digital record that has no legal standing
  4. DEncrypting customer data so that the asset can no longer be traded outside the issuing institution

Explanation

Tokenization means representing claims on real or financial assets as tokens on a programmable platform, so records and transfers can be combined. Unbacked crypto assets have no underlying claim, which is the opposite of a tokenized fund share. Tokenization does not remove legal title or merely encrypt data.

Did you get it right without looking?

One question tells you little. A timed set on Tokenization and Financial Market Inefficiencies shows your real accuracy, how long you take and where you lose marks.

Practise Tokenization and Financial Market InefficienciesFree diagnostic mock

More Tokenization and Financial Market Inefficiencies questions