Which of the choices below regarding market, credit, and operational risk is correct?
A. People risk relates to the risk associated with incompetence and lack of suitable training of internal employees and/or external individuals.
B. Between two counterparties, presettlement risk is always higher than settlement risk.
C. Options are examples of financial instruments with non-directional risks.
D. Funding liquidity risk results from a large position size forcing transactions to influence the price of securities
People risk relates to the risk associated with fraud perpetrated by internal employees and/or external individuals. It does not relate to incompetence and lack of suitable training. Presettlement risk is lower than settlement risk because the former allows for offsetting of payments while the latter requires settlement of the full value of payments. Non-directional risks have non-linear exposures to changes in economic or financial variables which is clearly the case with options. Asset-liquidity risk (not funding liquidity risk) results from a large position size forcing transactions to influence the price of securities.