Financial institutions are exposed to various types of risk. With practical examples, discuss any four types of investment risk that commercial banks are exposed to. (Your answer should not exceed 800 words)
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Financial institutions are exposed to various types of risk. With practical examples, discuss any four types of investment risk that commercial banks are exposed to. (Your answer should not exceed 800 words)
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- Write an essay about: How is risk described in finance? What methods can be used by financial services firms to manage risk? Provide in text references. Cannot exceed 500 wordsIf ABC Bank’s ALCO targets the market value of shareholders’ equity in its interest rate risk management, is the bank positioned to gain or lose if interest rates fall? If interest rates rise by 1% for all assets and liabilities, what is the approximate expected change in the bank’s economic value of equity? Provide a specific transaction that the bank could implement in order to immunize its interest rate risk exposure.According to Koch and MacDonald (2009), banks’ risk can be identified as six types: credit risk, liquidity risk, market risk, operational risk, reputation risk and legal risk. Each of these risk might generate harmfully influence the financial institution’s probability, market value, liabilities and shareholder’s equity. Adapted: Al-Gamal, E and Siddiq, A (2019), Significance of Credit Risk Management in Banking Industry in Yemen. In this context, explain the fundamental differences between market risk and operational risk using examples. Explain what you understand by full models and discuss ANY FIVE criticisms of full models as used in risk modelling.
- Governments require some banks to conduct stress tests of their financial situation. What type of financial regulation is this requirement? A. Disclosure requirements B. Assessment of risk management C. Restrictions on competition D. Consumer protectionBanks are the custodian of public borrowing and savings which may face different types of internal and external risks. As a finance student:a- Explore & examine any five major types of risks associated with banking sector of Oman. b- Elaborate the risk management strategies to mitigate such potential banking risks.Assess the regulatory environment faced by brokerages and investment banking firms. Do you consider this environment to be highly regulated, moderately regulated or unregulated. Justify your response.Compare and contrast credit risk with liquidity risk.Describe the size, structure and composition of the mutual fund industry. Do you consider these characteristics as having a positive or negative impact on investors ? Why ?An investment bank pays $ 23.00 for 4 million shares of JC Co., and then resells them for $ 25 per share. How much money does JC receive? What is the profit to the investment bank ?An investment bank pays $ 20.50 per share for 3 million shares of X. It then sells these shares to the public for $ 22.50 per share. How much money does X receive ? What is the profit to the investment bank ? What is the stock price of X ?A mutual fund owns 500 shares of X currently trading at $ 12, and 300 shares of Y, currently trading at $ 24. The fund has 900 shares outstanding.What is…
- Two types of financial risks faced by banks operating in the Financial sector and state how a risk management tool can be used to mitigate suck riskWhich of the following is defined as the level of capital that allows banks to sustain the potential losses arising from all current risks and to comply with an acceptable solvency level. a. Asset liquidity b. Capital adequacy c. Liquidity position of a bank d. Market liquidityBriefly discuss in detail each of the following questions. A. What are the key methods for measuring and managing liquidity risk?B. What are the three main methods for measuring and managing interest rate risk?C. Why is Enterprise Risk Management system important in a bank?D. What are the key objectives of bank regulation and supervision?
- Briefly discuss in detailed summary each of the following questions. A. What are the key methods for measuring and managing liquidity risk?B. What are the three main methods for measuring and managing interest rate risk?C. Why is Enterprise Risk Management system important in a bank?D. What are the key objectives of bank regulation and supervision?Based upon risk, which of the following financial assets is likely to have the highest required rate of return? Select one: A. A corporate bond B. A U.S. Treasury bill C. A bank certificate of deposit D. A share of common stockWhat are some of the ways that banks can borrow short-term funds when they need "liquidity"?(Select all that apply; three of the answers below are correct.) Reference: Chapters 11 & 12 They can borrow directly from the Securities & Exchange Commission through the "regulatory" market. They can borrow from the Department of Treasury through the "Treasury" window. They can borrow another bank's reserves through the "fed funds" market. The can engage in a "sale & repurchase agreement" (or "repo") by selling some of their securities to another financial insitution and promising to buy them back the next day. They can borrow directly from the Federal Reserve through the "discount window".