Questions from Financial Markets

Q: What is the process of asset transformation performed by a financial institution

What is the process of asset transformation performed by a financial institution? Why does this process often lead to the creation of interest rate risk? What is interest rate risk?

Q: Corporate Bank has $840 million of assets with a duration of

Corporate Bank has $840 million of assets with a duration of 12 years and liabilities worth $720 million with a duration of seven years. Assets and liabilities are yielding 7.56 percent. The bank is c...

Q: What is refinancing risk? How is refinancing risk part of interest

What is refinancing risk? How is refinancing risk part of interest rate risk? If an FI funds long-term fixed-rate assets with short-term liabilities, what will be the impact on earnings of an increase...

Q: What is reinvestment risk? How is reinvestment risk part of interest

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 ra...

Q: The sales literature of a mutual fund claims that the fund has

The sales literature of a mutual fund claims that the fund has no risk exposure since it invests exclusively in default risk free federal government securities. Is this claim true? Why or why not?

Q: Why is credit risk analysis an important component of FI risk management

Why is credit risk analysis an important component of FI risk management?

Q: What are conditions precedent?

What are conditions precedent?

Q: Why is an FI’s bargaining strength weaker when dealing with large corporate

Why is an FI’s bargaining strength weaker when dealing with large corporate borrowers than mid-market business borrowers?

Q: Consider the coefficients of Altman’s Z score. Can you tell by

Consider the coefficients of Altman’s Z score. Can you tell by the size of the coefficients which ratio appears most important in assessing the creditworthiness of a loan applicant? Explain.

Q: Explain how modern portfolio theory can be applied to lower the credit

Explain how modern portfolio theory can be applied to lower the credit risk of an FI’s portfolio.