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Types Of Risks In Financial Institutions

15 Questions  I  By Chronicles
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Types Of Risks In Financial Institutions

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1.  A businessmen has a huge deposits in a local bank. Due to some unforeseen situations he needs to withdraw immediately a huge amount. The bank does not have the cash balance and asks him to come after 3 days. The news spreads and many depositors rush to the bank to withdraw their deposits. Liquidity kind of problem is faced by the bank which has led to a situation called ___________________________________ in banking jargon.
2.  Banks have assets of housing loans. When interest rates fall borrowers rush to close these loans as they prefer to be refinanced at the lower interest rates. This interest related risk is called _____________________ Risk
3.  FIs that invest in bonds with long maturities are more exposed to risk than if they had invested in bonds with short maturities?
4.  When a bank goes to liquidate its high interest paying asset and it cannot do so and faces credit risk then it can be said that the bank has not handled prudently the tradeoff between ________________ and Risk.
5.  The advantage that FIs have over individual investors in their ability to diversify credit risk exposure is due to the law of ____________________.
6.  Borrowing short and lending long exposes a FI to __________________ Risk
7.  When lenders to financial institution want to make huge withdrawals,the FI faces Liquidity problems. Sometimes, due to rumors or market gossip this problems turn into a ___________________________ problem.
8.  A businessmen has kept Rs. 5Lakhs fixed Deposit with a bank. He urgently needs money and wants to break the deposits, though he may lose some interests. The bank has Rs. 50K cash balance. It has invested Rs.4,50,000 in a short term loan to a company XYZ Ltd which is paying them a very high interest. However, XYZ Ltd cannot repay the amount and asks for extension.The type of Risk involved are Liquidity Risk and Credit Risk. Liquidity problem leads to _____________________________.
9.  When a secured loan goes bad the FI does not lose totally as it can _____________________.
10.  An FIs trading portfolio can be differentiated from its investment portfolio on the bases of
11.  Diversification of portfolio reduces firm specific credit risk but there is still exposure to ___________________ credit risk
12.  _______________________ of the investment portfolio can reduce the overall credit risk.
13.  Borrowing long and lending short exposes a FI to ______________________ risk.
14.  If a FI gives a secured loans and a borrower defaults in payment of interest and principle, does the FI lose all of the money. State Yes or No.
15.  When FIs buy primary securities or assets and issue secondary securities or liabilities to fund the assets, the activity is called_______________________________.
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