Business-7789061 - will go bankrupt The high leverage is...

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Question: 2. Given the capital structure of a bank, why must it keep a low degree of credit risk exposure? Solution: The banks must keep a low degree of credit risk exposure. Credit risk exposure refers to the outstanding obligation of the bank if there is a default. If the obligator is not able to pay the bank and the credit risk exposure is high, the bank will not be able to repay its own obligations and it
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Unformatted text preview: will go bankrupt. The high leverage is the reason for this risk. High leverage means a higher risk of bankruptcy because of non-repayment. In such a situation, it is advisable for banks to keep a low degree of credit risk exposure. The higher the credit risk exposure the higher the risk of default for banks....
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This note was uploaded on 02/21/2012 for the course ACT 492 taught by Professor Ngo during the Fall '11 term at Colorado.

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