CISI International Certificate in Wealth & Investment Management ICWIM Question # 28 Topic 3 Discussion
ICWIM Exam Topic 3 Question 28 Discussion:
Question #: 28
Topic #: 3
Stablecoins were introduced to overcome the volatility issues associated with speculative cryptocurrencies. Many hold treasury securities and commercial paper as their reserves. What is the greatest concern in relation to this?
A.
If the underlying assets had to be sold rapidly, then the risk of a cyber breach would be significant and cause large losses for investors
B.
If the underlying assets had to be sold rapidly, then the sheer size of their holdings would cause serious liquidity issues and potential contagion in credit markets
C.
They are often referred to as virtual currencies to indicate that they are not issued or guaranteed by central banks and so are not fiat money
D.
Banks would not buy their assets as they do not support Stablecoins
Stablecoins are cryptocurrencies pegged to stable assets (e.g., USD, gold) and backed by reserves such as treasury bonds and commercial paper.
Why is Option B Correct?
If stablecoins faced mass withdrawals, they would need to liquidate large amounts of treasury securities or corporate debt.
This could trigger a liquidity crisis, impacting financial markets.
Example: The TerraUSD collapse in 2022 showed the risks of unstable reserves.
Why Not Other Options?
A (Cyber breach risk) → Security is important but not the biggest risk.
C (Not fiat money) → True, but this is not a risk, just a definition.
D (Banks not buying assets) → Banks may invest in reserves, but stablecoins operate outside traditional banking.
???? Reference: Bank for International Settlements (Stablecoin Risks), CISI Wealth & Investment Management.
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