What Is the Difference Between a Lockbox System and Concentration

question 141

Multiple Choice

What is the difference between a lockbox system and concentration banking?

• A) In concentration banking, both physical collection and processing take place close to the customer but in a lockbox system, neither the collections nor processing take place close to the customer.
• B) In a lockbox system, customers' payments are physically collected close to them and much of the processing takes place close to the bank, but in concentration banking both physical collection and processing take place close to the bank.
• C) Concentration banking involves using several banks to fund a large loan and lockbox systems deal with the ability to speed up collections.
• D) None of the options.

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Definitions:

Hedge Ratio

The ratio used to manage risk in financial portfolios, determining the size of a position required to offset potential losses.

Dollar Exposure

The extent to which a company or investment is affected by changes in the US dollar value, particularly in foreign exchange risk.

Call Delta

A measure of the sensitivity of an option's price to a change in the price of the underlying asset.

Volatility Risk

The risk in the value of options portfolios due to unpredictable changes in the volatility of the underlying asset.