A bank has the following balance sheet: Assets Liabilities Real Estate Loans 800 Deposits 1000 Fixed Assets 600 short-term bonds 200 Cash 100 Capital 300

a) Explain what insolvency risk is. (10 marks)

b) Which bank is exposed to a higher degree of insolvency risk: the one in this problem, or a bank with a financial leverage ratio of 300%? Explain your answer. (10 marks)

c) As the balance sheet shows the bank acquires funds through issuing bonds and invests the collected funds in real estate. Describe the fund-raising risks that the bank faces. Also, what risks does the bank face on the investment side of the balance sheet? (20 marks)

d) Would your list of risks change if the bank invests in real estate abroad? Explain your answer. (10 marks)