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- c) What are the benefits and risks of off-balance-sheet (OBS) activities to a bank?1. This refers to the funds that are tied up in transit or in the banking system 2. A type of risk where the issuer of the security will not pay interest or principalrefers to the possibility that the debtors supported by bank credit are unable or unwilling to repay the debts on time as stipulated in the contract for various reasons, causing losses to the bank. (A) Credit risk (B) Market risk (C) Operational risk (D) Liquidity risk
- 5) Systemic risk is a) credit risk. b) an insurance contract against the default of one or more borrowers. c) firm-specific risk. d) default risk. e) the potential breakdown of the financial system when problems in one market spill over and disrupt others.MF 1 Explain in detail how can bank recover from a significant net loss due to unrealized securities.5. Which of the following will make Murabaha invalid? a. If payment is made in installments b. if the supplier is not paid directly by the bank. c. Price not agreed. d. Price not fully paid.
- QUESTION 4 The following is true of deposit insurance, except Depositor no longer has incentives to monitor the activities of the bank Moral hazard dissuades the bank manager from taking risky projects In theory, regulators have replaced depositors in the monitoring of banks Moral hazard encourages the bank manager to take on risky projects1. Why banks are subject to intense regulations? Explain the circumstances where banks are sometimes left with excess liqidity?Prove the statement with example "A bank should not sacrifice ether safety or liquidity to earn a high rate of interest.
- 3) What is meant by Bank overdraft? 4) Describe the measurement of financial statement elements according to the Financial Reporting Conceptual Framework.Which of the following statements is false? A. Moral hazard is the lack of incentive to guard against risk where one is protected from its consequences. B. Information about a bank’s activities and financial performance is available in the bank’s financial statements. C. As long as everyone continues to accept the paper bills in exchange, they will have value and serve as currency. D. To an economist, money is the stock of assets that can be readily used to make transactions.Which type of information asymmetry explains why bad credit risks are more likely to seek bank loans? A. Moral hazard B. Adverse selection C. Principal-agent problem