What are the main risks that credit ratings reflect? Do we need credit ratings? What are the parameters and risks that credit risk ratings do not incorporate and investors need to be aware of?

Q: Do you agree that banks have high operating risks? Why?

A: The notion of operational risk in the banking system does not seem to be new. Nevertheless, it was…

Q: what better to suggest in terms of investing, to invest in a low risk outlet such as the money…

A: To answer the above question one needs to understand what is a low-risk outlet and what is a…

Q: What are some examples of financial instruments that can be used for hedging interest rate risks,…

A: There are many ways to manage the interest rate risk.

Q: What is adverse selection?  Why does it predict that lenders will prefer to arrange loans through a…

A: The loan is the funds that a borrower takes from the lender at a certain rate of interest for a…

Q: Explain what the "Avoids" are when developing Key Risk Indicators for commercial banks.?

A: The key risk indicators are the quantitative measures that are used by commercial banks to evaluate…

Q: VAR models are used banks to assess lenders exposure to default by its bc customers Select one: O…

A: Answer : True

Q: Why is it a bad idea in investing in just one investment

A: Note : Dear student as per the Q&A guideline we are required to answer the first question only…

Q: We think of banks as being interest rate intermediaries. That is, the borrow cheaply, and then lend…

A: Following are the types of risk faces by banking industry other than interest rate:

Q: What reforms to the financial system might reduce its exposure to systemic risk?

A: The important act for the reforms to the financial system that might reduce its exposure to systemic…

Q: “Financial intermediaries play a crucial role in an economic crisis–they are responsible for both…

A: A financial intermediary is a middlemen between a financial transaction. Examples of financial…

Q: Which failures in risk management systems have had catastrophic consequences in financial markets?…

A: The risk management executives have acquired expanded consideration and interest as of late, both…

Q: Explain how a mortgage company’s degree of exposure to interest rate risk differs from that of other…

A: Commercial banks, investment banks, insurance companies, and brokerage firms are the most frequent…

Q: Explain the concept of liquidity risk in banking. Why is it important to control liquidity risk?

A: Liquidity refers to the ability of a bank to meet its cash and collateral obligations without…

Q: Credit analysts are likely to consider which of the following in making a rating recommendation?A .…

A: Credit analysts are professionals who are appointed by credit rating agencies or any investment…

Q: Do bond ratings adjust immediately to changes in credit quality? Explain.

A: Bond ratings are the ratings given by the rating agencies on the credit quality of debt instruments…

Q: Define the Credit Risk and include in your discussion examples of the Credit Risk and why Financial…

A: A large number of financial transactions take place in the financial system and each transaction…

Q: Why do credit ratings change? How can these changes affect investors?

A: Credit ratings are assigned on the basis of extensive economic analysis by the credit rating…

Q: What bank regulation is designed to reduce adverse selection problems for deposit insurance? Will it…

A: Banks are the financial institutions that are involved in providing financial services to their…

Q: risk

A: Introduction: Banks & other financial institution play an important role in the economic…

Q: Discuss the potential market failure in the diamond model of banking regulations

A: The diamond model in banking is also known as the dual principle-agent relationship model because it…

Q: In managing credit risk for banks what are the two main concerns that banks have when lending money?…

A: Credit risk: It is the risk involved in receiving the interest and principal payments from the…

Q: Are credit rating agencies reliable?

A: Credit rating Agencies rates the banks as per its past borrowing performance. These agencies measure…

Q: How does credit risk for a financial institution differs from default risk and What are the problems…

A: Lender loans money to the borrower, and there subsist as the risk of non-repayment of loan or…

Q: The financial crisis of 2008-2009 spawned the concept of "systemic risk." What is meant by this…

A: Systematic risk is an important concept in the world of finance and investments.

Q: Why are credit rating agencies reliable/unreliable?

A: Credit Rating agencies are unreliable because of the following reasons: 1-Ideological biases: In…

Q: portant topic that usually only economists observe.

A: Basically, risk the executives happens when an investor or fund manager investigates and endeavors…

Q: Why is granting credit riskier in an international context?

A: The term credit refers to selling goods on credit by the business top its customers i.e. instead of…

Q: Does collateral reduces moral hazard by borrowers? Why?

A: Introduction: A collateral asset is an asset that a lender accepts as payment for a loan. Depending…

Q: What are some of the current challenges facing financial regulators?

A: Financial institutions have undergone many changes in the past decades or so mainly due to…

Q: What would be a sign of a shortage in financial markets?

A: The financial market refers to the market in which people trade financial securities like bonds,…

Q: What can you do to build and maintain your credit rating? Why is this important

A: Credit score is used to assess the quality of the credit of the borrower And it is based on 4…

Q: Which type of information asymmetry explains why bad credit risks are more likely to seek bank…

A: Adverse selection, as a rule, alludes to a circumstance where dealers have data that buyers do not…

Q: which of the following risks is most closely associated with off balance sheet? trading risk

A: Off balance sheet practice means when some liabilities and assets are not part of company's balance…

Q: Define credit risk and its implications for banks and other financial institutions as well as ways…

A: Credit Risk means risk which is faced by the Banks and Financial Institutions who lend money to…

Q: Explain liquidity risk and credit risk faced by banks and discuss how banks manage these risks

A: Liquidity risk It is characterized as the risk of bringing about misfortunes coming about because of…

Q: All of the following may be considered causes of the “dark side” of credit except: Group of answer…

A: Following may be considered causes of the “dark side” of credit: Operational issues that affect…

Q: (a) Distinguish between the activities of retail and investment banks and discuss how this has an…

A: An investment is an asset or item purchased for the purpose of generating an increase in income or…

Q: Credit Ratings Agencies face a moral hazard based on their Issuer-Par business model. Why is this…

A: Credit Ratings have always faced the ethical dilemma of having to provide credit for the issuer and…

Q: How do adverse selection and moral hazard affect the bank lending function? And How can minimise…

A: A Moral hazard occurs when one party tends to behave in the riskiest manner if it is protected…

Q: What is a key function of credit-rating agencies? Docredit-rating agencies always provide reliable…

A: Credit rating is the rating on the basis of which the credibility of the borrower is assessed by…

Q: Explain market risk and discuss why banks are subject to this risk. Discuss how banks manage this…

A: If an investor invests money in a market there are different types of risk which an investor is…

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.