Next, the banks would like to test your understanding of various risk management techniques. You are provided with the following balance sheet information as at 30 June 2022:

Liabilities	Maturity	Int Rate	$m		Assets	Maturity	Int Rate	Risk Weight	$m
Demand deposits			450		Cash			0%	10
Term deposits	1-3 yrs	2%	730		T-notes	1 month	1%	0%	50
Certificate of deposits	< 1 yr	3%	700		T-notes	3 month	2%	0%	50
Certificate of deposits	1-3 yrs	5%	200		T-bonds	2 years	3%	0%	70
Other borrowings	3-5 yrs	4%	150		T-bonds	10 yrs	5%	0%	100
Capital					Loans	< 1 yr	3%	20%	100
Tier 1			100		Loans	1-5 yrs	5%	50%	500
Tier 2			80		Loans	> 5 yrs	7%	100%	1,500
					Other assets			100%	30
			2410						2410
Note: the following information on maturity, interest rate, risk weight, etc. may not reflect reality 1. Interest rates are expected to increase by 1.5% in 2022-2023 financial year
2. 3.5% of overall loans are expected to be set aside as potential losses; industry average is 2%
3. Legal minimum capital ratio is 8%; Basel framework is practiced

With respect to each the following risks: interest rate; liquidity; credit; and capital, you are asked to:

Identify and explain the main components of ONLY ONE technique to manage the risk

Using that or another appropriate technique, and the balance sheet information provided, assess the level of the relevant risk for the current financial year and comment on their riskiness

What would your recommendation(s) be for management of this risk in  the next financial year?

 

 

Interest rate risk

 Identify and explain the main components of ONLY ONE technique to manage the risk

 

Using that or another appropriate technique, assess the level of the relevant risk for the current financial year and comment on their riskiness

 

 

What would your recommendation(s) be for management of this risk in the next financial year?

 

Liquidity risk

Identify and explain the main components of ONLY ONE technique to manage the risk

 

 

 

Using that or another appropriate technique, assess the level of the relevant risk for the current financial year and comment on their riskiness

 

   

What would your recommendation(s) be for management of this risk in the next financial year?

 

 

 

Credit risk

Identify and explain the main components of ONLY ONE technique to manage the risk

 

Using that or another appropriate technique, assess the level of the relevant risk for the current financial year and comment on their riskiness

 

 

What would your recommendation(s) be for management of this risk in the next financial year?

 

 

Capital risk

Identify and explain the main components of ONLY ONE technique to manage the risk

 

Using that or another appropriate technique, assess the level of the relevant risk for the current financial year and comment on their riskiness

What would your recommendation(s) be for management of this risk in the next financial year?