Question
Describe the risk exposure(s) in the following financial transactions. Identify which transactions are influenced by interest rates or interest income. (CAUTION: Some can be influenced
Describe the risk exposure(s) in the following financial transactions. Identify which transactions are influenced by interest rates or interest income. (CAUTION: Some can be influenced by both!)
Risk Types: Interest rate risk, Credit risk, Technology risk, Foreign exchange rate risk, Country or sovereign risk
Financial Transactions | Risk Type | Describe and justify risk type | Interest Rate or Interest Income? |
A bank finances a $10 million, six-year fixed-rate commercial loan by selling one-year certificate of deposit. |
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An insurance company invests its policy premiums in a long-term municipal bond portfolio. |
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A French bank sells two-year fixed-rate notes to finance a two-year fixed-rate loan to a British entrepreneur. |
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A Japanese bank acquires an Austrian bank to facilitate clearing operations. |
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A bond dealer uses his own equity to buy Mexican debt on the less developed country (LDC) bond market. |
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A securities firm sells a package of mortgage loans as mortgage-backed securities. |
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Describe the features of the method you would choose to measure the interest risks identified.
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