468-19 - 19-4 and Example 19-5, p. 544 and 545). 6. FX...

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Chapter 19 - RISKS OF FINANCIAL INSTITUTIONS Risks Faced by Financial Institutions, See Table 19-1, p. 535. 1. Credit Risk - Loan Default Risk (See Example 19-1, p. 536, and Figures 19-1 and 19-2 on p. 536 and 537). 2. Liquidity Risk - Unexpected Deposit Outflow (see Table 19-2 on p. 540). 3. Interest Rate Risk - Maturity Mismatch or Fixed-Rate/Variable-Rate Mismatch, Examples 19-3 (p. 540) and 19-4 (p. 541). 4. Trading or Market Risk - Macro risk, recession, volatility or unexpected changes in interest rates, ex-rates or asset prices, especially the impact of these changes on a FI's trading activity, e.g. stock market crash or significant decline (-13.5% drop in 2002 for DJIA) 5. Off-Balance Sheet (OBS) Risk - Swaps, Futures Contracts, Contingent Assets/Liabilities (see Table
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Unformatted text preview: 19-4 and Example 19-5, p. 544 and 545). 6. FX Risk- Mismatched currencies for CFs, Interest Income/Interest Expense, see Figures 19-3 and 19-4, p. 546 and 547. 7. Country or Political Risk- Political Instability or Interference, see examples p. 548. 8. Technology Risk- Investments in technology that do not generate increased expected efficiencies or cost savings. However, technology risk could also turn out to be beneficial when cost savings are achieved. 9. Operational Risk- Technology or support breakdowns. 10. Insolvency Risk- Inadequate Net Worth/Equity to protect against decline in asset value (e.g., bad loans), and possible bank failure. BUS 468 / MGT 568: FINANCIAL MARKETS – CH 19 Professor Mark J. Perry 1...
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This note was uploaded on 11/18/2011 for the course ECON 351 taught by Professor Westbrook during the Fall '08 term at Rutgers.

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