What is the difference between firm-specific credit risk and systemic credit risk? How can an FI alleviate firm-specific credit risk?
Answer to relevant QuestionsIn the 1980s, much thrift that failed had made loans to oil companies located in Louisiana, Texas, and Oklahoma. When oil prices fell, these companies the regional economy, and the thrifts all experienced financial problems. ...What is reinvestment risk? How is reinvestment risk part of interest rate risk? If an FI funds short-term assets with long-term liabilities, what will be the impact on earnings of a decrease in the rate of interest? An ...What is foreign exchange risk? What does it mean for an FI to be net long in foreign assets? What does it mean for an FI to be net short in foreign assets? In each case, what must happen to the foreign exchange rate to cause ...If an FI has the same amount of foreign assets and foreign liabilities in the same currency, has that FI necessarily reduced the risk involved in these international transactions to zero? Explain.Why is credit risk analysis an important component of FI risk management?
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