Characterize the risk exposure(s) of the following FI transactions by choosing one or more of the following: (LG 20-1)

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 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 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.

AppendixLO1