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

Q: In which economic conditions would a central bankwant to use a “forward-guidance” strategy? Based…

A: Forward guidance refers to the communication from the central bank regarding the prevailing state of…

Q: Greater role assumed by government in bailing out financial intermediaries – too big to fail…

A: Financial intermediary is referred as the institution or an individual, which act as a middleman…

Q: What is the relationship between securitization and the role of financial intermediaries in the…

A: Securitization is a process in which various financial assets are merged to create an instrument,…

Q: Financial management techniques?

A: Financial management is a very important aspect because it helps firms in various areas like funds…

Q: What are the major risks faced by financial institutions?

A: MAJOR RISKS FACED BY FINANCIAL INSTITUTIONS ARE : 1. INTEREST RATE RISK  2. CREDIT RISK 3. LIQUIDITY…

Q: What provisions in the Dodd-Frank Wall Street Reform andConsumer Protection Act are designed to…

A: The Dodd Frank Wall Street reform and consumer protection Act is a law for regulating financial…

Q: Evaluate the two strategies adopted by financial institution to manage their risks.

A: Note: As you asked to provide the solution of part iii), we are providing the solution of part iii)…

Q: Is Modern banks are both financial intermediaries and risk intermediaries? And why

A: Yes, modern banks are both financial intermediaries and risk intermediaries since they exist among…

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: why financial markets and intermediaries should be regulated?

A: Banks, brokerage firms, and insurance companies are all governed by financial regulations.

Q: Define “financial frictions” in your own terms andexplain why an increase in financial frictions is…

A: Financial frictions can be defined as some conditions that exists in order to stop the financial…

Q: What is the link between securitization and the economic function of financial intermediaries? What…

A: Introduction: Securitization combines diverse financial assets into a single instrument that is then…

Q: What is the connection between securitization and the economic function of financial intermediaries?…

A: Introduction: Markets for the trade of financial securities are known as financial markets. These…

Q: What is the causes of the financial risk?

A: financial risk - financial risk is the possible danger of losing money from an investment made by…

Q: What are the real risks of an adverse financial outcome, especially in the short run?

A: Risk is the important factor of investment decisions to explain the capability of an investor to…

Q: Define corporate risk

A: Corporate risk is the risk related to the company’s normal course of activities. The corporate…

Q: What is financial risk, and how does it arise?

A: Answer: Usually, financial risk refers to a situation where a company is not able to pay its fixed…

Q: What are potential regulatory actions that should be taken to mitigate climate-related risks to…

A: Global warming and change in climatic patterns and events are negatively impacting our financial…

Q: Explain how macro-prudential regulations work to limit systemic risk in the financial system.

A: Systematic risks are the risks involved within the firm functionality that can be predicted and that…

Q: Define the term exposure to financial risk?

A: The question is based on the concept of Financial risk and its exposure.

Q: Discuss the how government can safeguard against financial instability

A: Financial instability could be a condition when problems within markets, institutions, or the…

Q: Discuss why financial systems are vulnerable to crises.

A: Financial system is the system that consist of marketplace, financial institutions, banks, insurance…

Q: What is the difference between business risk and financial risk?

A: Risk Analysis: The risk analysis is defined as the process of recognizing the potential problems…

Q: What are the basic risks faced by financial intermediaries? Discuss each thoroughly.

A: In financial terms, risk is defined as the possibility that the actual gains from an outcome or…

Q: Are there any novel ways by which some of the challenges in the financial system may be resolved in…

A: A proper risk management will help a company to solve its challenges in financial system. The steps…

Q: Discussion questions: What are the basic risks faced by financial intermediaries? Discuss each…

A: Financial intermediaries : Financial intermediaries can be described as institutions that act as the…

Q: When is the financial risk by far the most critical element to consider?

A: Introduction: Risk can be characterized in terms of the uncertainty of future consequences resulting…

Q: Implications of the business risk approach?

A: Business risk is the exposure a company or organization has to factor(s) that will lower its profits…

Q: What is the risk in the context of financial decision making and performance?

A: Financial decision making: Financial decision making denotes to decision making concerning financial…

Q: what are the benefit to the financial institution and their consumers of measuring or mitigating…

A: A strategy for planning for and decreasing the impact of hazards on an organisation is risk…

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: discuss how a risk management tool can be used to mitigate liquidity risk and credit risk

A: The process of identifying, assessing, and controlling hazards to an organization's capital and…

Q: Why are financial markets and financial institutions important?

A: Financial markets: It is the market that are used for trading financial securities at a low costs.…

Q: what happens if a company doesn't manage risk ?

A: Risk management is important part of carrying the business activities. There are different types of…

Q: Why is there a need to manage risk in financial institutions?

A: A financial institution (FI) is a firm that specializes in financial activities, including deposits,…

Q: What are some determinants of business risk?

A: Business risk is referred as the exposure of risk factors towards a company or a business which…

Q: Explain liquidity risk and how it can affect financial institutions, and discuss the framework used…

A: Liquidity risk: It is the risk of having losses by not meeting its payment obligations in a timely…

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: How does risk management affect a company’s ability to finance its projects?

A: Risk is associated with every business; there are some risks which are controllable by the…

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.