Read through the following institution transactions. As you do so, characterize the risk exposure(s) of each one by matching the transaction with one or more of the risks listed A-F at the end.
- A bank finances a $10 million, six-year fixed-rate commercial loan by selling one-year certificates of deposit.
- An insurance company invests its policy premiums in a long-term municipal bond portfolio.
- A French bank sells two-year fixed-rate notes to finance a two-year fixed-rate loan to British entrepreneur.
- A Japanese bank acquires an Austrian bank to facilitate clearing operations.
- A mutual fund completely hedges its interest rate risk exposure using forward contingent contracts.
- A bond dealer uses his own equity to buy Mexican debt on the less developed countries (LDC) bond market.
- A securities firm sells a package of mortgage loans as mortgage-backed securities.
- Credit risk
- Interest rate risk
- Off-balance-sheet risk
- Foreign exchange risk
- Country/sovereign risk
- Technology risk
0 comments