FIs face major areas of risk exposure arising from on-balance sheet and off-balance sheet (OBS) activities. Failure to manage these major risks can lead to the FIs insolvency. The FIs capital provides a primary means of protection against the risk of insolvency and the possible failure of the FI.

a) Briefly describe an OBS activity which may be undertaken by a FI. 

b) Discuss insolvency risk

c) Discuss five (5) major functions fo the capital of a FI. 

Answer rating: 100% (QA)

a An offbalance sheet OBS activity that may be undertaken by a financial institution FI is the issuance of standby letters of credit A standby letter of credit is a guarantee provided by the FI to a b... View the full answer