Skip to content

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

A risk manager reviews a tokenized platform where trades settle atomically and collateral calls are automated by smart contracts triggered by price feeds. In a sharp market sell-off, which new risk is most plausible from combining these features?

Automated margin calls and liquidations tied to oracle price feeds can fire simultaneously in a sell-off, creating procyclical selling that amplifies price falls and adds oracle dependence. Atomic settlement removes leg-timing risk, and automation accelerates rather than slows collateral collection.

  1. AProcyclical, rapid automated liquidations and margin calls driven by oracle prices, amplifying price fallsCorrect
  2. BSlower margin collection because contracts cannot act without human approval
  3. CIncreased settlement risk because legs settle at different times
  4. DReduced dependence on data inputs because code replaces market prices

Explanation

Automated triggers act instantly and uniformly on the same data, so many positions can be liquidated together, amplifying price moves. They also rely on oracle inputs, which can be wrong or manipulated. Atomic settlement removes leg timing risk, and automation speeds rather than slows collection.

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