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Unformatted text preview: nance companies, and so on, in fact they face risks that are more
common than different. Specifically, all the FIs described in this and the next five
chapters (1) hold some assets that are potentially subject to default or credit risk and
(2) tend to mismatch the maturities of their balance sheets to a greater or lesser extent
and are thus exposed to interest rate risk. Moreover, all are exposed to some degree of
saver withdrawal or liquidity risk depending on the type of claims sold to liability
holders. And most are exposed to some type of underwriting risk, whether through the
sale of securities or by issuing various types of credit guarantees on or off the balance
sheet. Finally, all are exposed to operating cost risks because the production of financial services requires the use of real resources and back-office support systems.
In Chapters 7–28 of this textbook, we investigate the ways in which managers of
FIs are measuring and managing this inventory of risks to produce the best return-risk
trade-off for shareholders in an increasingly competitive and contestable market
environment. Questions and
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- Spring '09