Characterize the risk exposure(s) of the following FI transactions by choosing one or more of the risk
Question:
Characterize the risk exposure(s) of the following FI transactions by choosing one or more of the risk types listed below:
a. Interest rate risk
b. Credit risk
c. Off-balance-sheet risk
d. Technology risk
e. Foreign exchange risk
f. Country or sovereign risk (1) A bank finances a $10 million, six-year fixed-rate commercial loan by selling one-year certificates of deposit.
(2) An insurance company invests its policy premiums in a long-term municipal bond portfolio.
(3) A French bank sells two-year fixed-rate notes to finance a two-year fixedrate loan to a British entrepreneur.
(4) A Japanese bank acquires an Austrian bank to facilitate clearing operations.
(5) A mutual fund completely hedges its interest rate risk exposure by using forward contingent contracts.
(6) A bond dealer uses his own equity to buy Mexican debt on the less developed country (LDC) bond market.
(7) A securities firm sells a package of mortgage loans as mortgage-backed securities.
Step by Step Answer:
Financial Institutions Management A Risk Management Approach
ISBN: 9781266138225
11th International Edition
Authors: Anthony Saunders, Marcia Millon Cornett, Otgo Erhemjamts