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(a) What is an off-balance sheet asset? Provide one example of an off-balance sheet asset. What is an on-balance sheet liability? Provide one example of
(a) What is an off-balance sheet asset? Provide one example of an off-balance sheet asset. What is an on-balance sheet liability? Provide one example of an off-balance sheet liability. [2 marks] (b) How is a financial institution exposed to liquidity, interest rate and credit risks when it makes loan commitments? [5 marks] (c) In lectures, we discussed derivatives. Provide an example of how derivative instruments can expose a financial institution to significant risk. Provide an example of how derivative instruments can minimize the risk to a financial institution caused by its on-balance sheet activities. [3 marks]
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