The list below indicates the list of transactions that a financial institution decides to do: a)...

 

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The list below indicates the list of transactions that a financial institution decides to do: a) A bank finances a SGD5 million, five-year fixed-rate commercial loan by selling five-year certificates of deposit valued at SGD5 million. b) A bank in Singapore takes 50 percent of its SGD200 million in one-year funds to make one-year maturity U.K. pound loans to an enterprise located in Singapore, while keeping 50 percent of its funds to make U.S. dollar loans. c) A financial institution in Singapore sells two-year fixed rate notes valued at SGD10 million to invest in EUR bonds issued by firms located in France. d) Many depositors decide to withdraw their funds at once from a bank and these withdrawals far exceed the bank's cash balance. e) A bank partially hedge its interest rate risk exposure using forward contingent contracts. Required: Characterise the risk exposure(s) of each of the transactions above by choosing one or more of the risk types listed below. (5 marks/transaction) 1. Interest rate risk 2. Technology risk 3. Credit risk 4. Foreign exchange rate risk 5. Liquidity risk 6. Off-balance-sheet risk 7. Country or sovereign risk The list below indicates the list of transactions that a financial institution decides to do: a) A bank finances a SGD5 million, five-year fixed-rate commercial loan by selling five-year certificates of deposit valued at SGD5 million. b) A bank in Singapore takes 50 percent of its SGD200 million in one-year funds to make one-year maturity U.K. pound loans to an enterprise located in Singapore, while keeping 50 percent of its funds to make U.S. dollar loans. c) A financial institution in Singapore sells two-year fixed rate notes valued at SGD10 million to invest in EUR bonds issued by firms located in France. d) Many depositors decide to withdraw their funds at once from a bank and these withdrawals far exceed the bank's cash balance. e) A bank partially hedge its interest rate risk exposure using forward contingent contracts. Required: Characterise the risk exposure(s) of each of the transactions above by choosing one or more of the risk types listed below. (5 marks/transaction) 1. Interest rate risk 2. Technology risk 3. Credit risk 4. Foreign exchange rate risk 5. Liquidity risk 6. Off-balance-sheet risk 7. Country or sovereign risk

Answer rating: 100% (QA)

a Interest rate risk The bank is exposed to interest rate risk as it has financed a fixedrate commer... View the full answer