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1. Label each of the following risks as credit, liquidity, interest rate, market, off-balance-sheet, FX, sovereign, technology, operational, or insolvency risk. Not all answers will
1. Label each of the following risks as credit, liquidity, interest rate, market, off-balance-sheet, FX, sovereign, technology, operational, or insolvency risk. Not all answers will be used. a. A particularly concerning risks when the maturities of assets and liabilities do not match and values of these fluctuate with interest rates. i. Answer: b. A risk that potential risks from derivatives positions may dampen future profits, even though they are not currently reflected on the firm's financial statement showing assets, liabilities, and equities. i. Answer: C. A risk that a financial institution expected to receive $1.2 million in cash flows from a loan made but only receives $1 million in practice. i. Answer: d. A risk that a financial institution fails to have enough capital to weather a storm where asset values fall below the value of their liabilities. i. Answer: e. A risk that large increase in withdrawals by customers that was not anticipated forces a bank to sell off assets quickly at depressed prices to meet cash demands. i. Answer: f. A risk that a financial institution faces when it has assets denominated in US dollars and liabilities denominated in Euros and the corresponding potential losses that could occur if the value of the Dollar to the Euro changes i. Answer: g. The risk that a financial institution faces when actively trading assets and their values suddenly change due to changes in the economy and/or financial market. i. Answer: h. A risk that a U.S. financial institution is owed payments from a borrower in North Korea but the local government forbids the borrower to make payment to the U.S. firm
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