Purchase Solution

risk exposure

Not what you're looking for?

Ask Custom 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 by both!)

Risk Types: Interest rate risk, Credit risk, Technology risk, Foreign exchange rate risk, Country or sovereign risk

Financial Transactions Risk TypeDescribe and justify risk type Interest Rate or Interest Income?

1.A bank finances a $10 million, six-year fixed-rate commercial loan by selling one-year certificate of deposit.

2. An insurance company invests its policy premiums in a long-term municipal bond portfolio.

3.A French bank sells two-year fixed-rate notes to finance a two-year fixed-rate loan to a British entrepreneur.

4.A Japanese bank acquires an Austrian bank to facilitate clearing operations.

5.A bond dealer uses his own equity to buy Mexican debt on the less developed country (LDC) bond market.

6.A securities firm sells a package of mortgage loans as mortgage-backed securities.

Describe the features of the method you would choose to measure the interest risks identified.

Purchase this Solution
Solution Summary

Describe the risk exposure(s) in the following financial transactions. Identify which transactions are influenced by interest rates or interest income.

Solution Preview

1.A bank finances a $10 million, six-year fixed-rate commercial loan by selling one-year certificate of deposit.

It is an interest rate risk as well as credit risk. It is an interest rate risk because change in interest rate can change the value of the fixed rate assets such as commercial loan. It is also a credit risk because cash flows from the loan may not be paid in full. It is exposed to interest rate as well as interest income.

2. An insurance company invests its policy premiums in a long-term municipal bond portfolio.

It is an interest rate risk because returns on the portfolio may increase or decrese due to interest rate movements. It is exposed to interest rate as well as interest income.

3.A French bank sells two-year fixed-rate ...

Solution provided by:
Sheetal Jain, PGDM
Education
  • BComm, University of Delhi
  • Post Graduate Diploma in Management (Equivalent to MBA), All India Management Association
Recent Feedback
  • "Thanks"
  • "Thanks"
  • "Very good! "
  • "thanks"
  • "Thank you!"
Purchase this Solution
Free BrainMass Quizzes
Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

Understanding the Accounting Equation

These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.

Employee Orientation

Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.

Team Development Strategies

This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.

MS Word 2010-Tricky Features

These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.

View More Free Quizzes
Related BrainMass Solutions

  • Major Types of Foreign Exchange Risks

    Mainly there are two types of foreign exchange risk: (i) Economic Exposure (risk) (ii) Accounting Exposure (risk) Economic exposure: Economic exposure is the type of foreign exchange risk that arises due to economic factors.

  • Managing Exchange Rate Risk with VAR

    Exchange rate risk is also known as currency risk. There are various types of exchange rate risk including translation exposure, transaction exposure, contingent exposure, and economic exposure.

  • Exposures, Risks and Opportunities

    Tax exposure Tax exposure is the risk associated with increased tax charges that might arise from various other exposure risks (e.g., transaction exposure).

  • translation exposure and transaction exposure

    risk. 2.

  • Economic exposure

    This means that there is a much higher economic exposure risk in Ghana as compared to that in Thailand. The solution explains the economic exposure of Thailand and Ghana.

  • Foreign Exchange Risk Factors

    Exchange rate risk is sometimes called currency risk. Transaction exposure arises whenever a company is committed to a foreign-currency denominated transaction.

  • Tort risk exposure

    384916 Describe the tort risk exposure for any organization with which you are familiar with. Describe the tort risk exposure for any organization with which you are familiar with.

  • Economic Risk Assessment

    The translational exposure risk is low.

  • International Finance

    What is exchange risk, as distinct from exposure? ANSWER. Exchange risk involves the extent to which uncertain exchange rate changes lead to uncertain fluctuations in the value of the firm. If the firm has no exposure, it has no exchange risk.

  • Interest rate,Credit,Technology & foreign exchange rate risk

    Risk Types: Interest rate risk, Credit risk, Technology risk, Foreign exchange rate risk, Country or sovereign risk See the attached file. This post describe the risk exposure(s) in the financial transactions.

View More Related Solutions