Skip to content

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

A risk analyst reviewing the IMF paper on tokenization notes that in a traditional cross-border securities transaction, the buyer and seller each rely on several intermediaries (custodians, central securities depositories, correspondent banks). Which friction does this chain of intermediaries most directly create?

A chain of intermediaries means each keeps its own ledger, so transactions require sequential updates and reconciliation. This produces settlement delays, higher operational risk and costs. Instant atomic settlement and a single shared ledger are features tokenization seeks to provide, not features of traditional markets.

  1. AHigher settlement delays and reconciliation costs because each ledger must be updated separatelyCorrect
  2. BElimination of counterparty risk because each intermediary guarantees the trade
  3. CInstant atomic settlement of securities against cash
  4. DLower operational risk because records are held in one shared ledger

Explanation

Multiple intermediaries each keep their own records, so ledgers must be reconciled and updated in sequence. This causes settlement delays, operational errors and costs. The other options describe benefits that tokenization on a shared ledger aims to deliver, not the traditional chain.

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