The question asks to identify 1 weakness in the Risk Management system, but the guideline answer names 3, but all relating to VaR. I wrote about counterparty risk as they had exposure to forwards and options and to use futures/only use counterparties that are willing to post margin daily. I am not technically wrong, but would I get credit for the answer?
I know the guideline answers are not exhaustive, but what do we do in these instances?
Is that really a weakness of the risk management system?
No to argue, but I thought it was one of the weaknesses. It’s one of the financial risks mentioned in reading 31 (specifically called Credit Risk) and was an answer to a similar “find the weakness” question in one of the Schweser or Wiley mocks I have taken.
I don’t consider it an argument; I want to make sure that the guideline answers are accurate and complete to the best of my ability.
When I was doing the problem, I thought it was obvious the question was asking us to address the problems in the last paragraph. I would have never thought about counterparty risk since the question asked for one weakness in IFC’s risk management system. The purpose of a risk management system is to address and manage counterparty risk and other risk factors, how can it be a weakness to the system? A system by definition is referring to its architect (aka adding VaRs from each department without accounting for correlation)?