unit 03 paper

With the daily average turnover of over US$1,500 billion, the foreign exchange market is a major potential source of settlement risk and, more significantly, systemic risk. Foreign exchange settlement risk arises due to time lag between the execution of a foreign exchange transaction and its confirmed settlement, and consists of both credit and liquidity risks. Foreign exchange settlement exposure can from time to time be as great as or even exceed the capital of many commercial banks actively taking part in foreign exchange transactions. This would potentially