Characterize the risk exposure(s) of the following FI transactions 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

(1)

(2)

(3)

(4)

(5)

(6)

(7)

f. Technology risk A bank finances a $10 million, six-year, fixed-rate commercial loan by selling one-year certificates of deposit.

An insurance company invests its policy premiums in a long-term municipal bond portfolio.

A French bank sells two-year fixed-rate notes to finance a two-year fixed-rate loan to a British entrepreneur.

A Japanese bank acquires an Austrian bank to facilitate clearing operations.

A mutual fund completely hedges its interest rate risk exposure using forward contingent contracts.

A bond dealer uses his own equity to buy Mexican debt on the less developed countries (LDC) bond market.

A securities firm sells a package of mortgage loans as mortgagebacked securities. LO.1