Characterize the risk exposure(s) of the following FI transac- tions by choosing one or more of the
Question:
Characterize the risk exposure(s) of the following FI transac- tions by choosing one or more of the following: (LG 19-1)
a. Credit risk
b. Interest rate risk
c. Off-balance-sheet risk
d. Foreign exchange rate risk
e. Country/sovereign risk
f. Technology risk (1) A bank finances a $10 million, six-year, fixed-rate com- mercial 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 fixed-rate 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 using forward contingent contracts. (6) A bond dealer uses his own equity to buy Mexican debt on the less developed countries (LDC) bond market. (7) A securities firm sells a package of mortgage loans as mortgage-backed securities.
Step by Step Answer:
Financial Markets And Institutions
ISBN: 9780078034664
5th Edition
Authors: Anthony Saunders, Marcia Cornett