How Does a Prime Broker’s Collateral Management System Handle Cross-Currency Risk?
The system must accurately value collateral and exposures that are denominated in different currencies. It does this by applying daily exchange rates and often requiring additional margin to cover potential fluctuations in those rates.
This "cross-currency haircut" ensures that the collateral value remains sufficient even if currency pairs move adversely against the broker's position.
Glossar
Collateral Management System
Architecture ⎊ A Collateral Management System within cryptocurrency, options, and derivatives markets functions as a dynamic framework for mitigating counterparty credit risk, evolving beyond traditional post-trade processes to accommodate real-time margin adjustments and the volatility inherent in these asset classes.
Prime Broker
Facilitation ⎊ A prime broker, within cryptocurrency derivatives and options trading, functions as an intermediary providing services to hedge funds and other large institutional investors.
Currency Pairs
Quoting ⎊ The establishment of relative pricing between two distinct digital assets, forming a tradable unit for exchange or derivatives pricing, defines the pair's market relationship.