FIs face major areas of risk exposure arising from on-balance sheet and off-balance sheet (OBS) activities. Failure to manage these major risks can lead to the FIs insolvency. The FIs capital provides a primary means of protection against the risk of insolvency and the possible failure of the FI.

a) Briefly describe an OBS activity which may be undertaken by a FI. (2 marks)

b) Discuss insolvency risk (8 marks)

c) Discuss five (5) major functions fo the capital of a FI. (10 marks)