Banking risks & risk management Questions with Complete Solutions (Latest 2025) Importance of risk management - Correct Answers ✅- reduce risk of bank failure -regulators insist on better risk management & separation of risk -banks face various dynamic risks which need to be managed specifically Credit risk - Correct Answers ✅the risk of default on a debt that may arise from a borrower failing to make required payments C.R management -manage asset portfolio to reduce the risk of non- performance -exposure must be diversified to fit the banks risk policy e.g loans long term vs short term, retail vs wholesale loan risk can be managed by? - Correct Answers ✅-pre- credit checks -individual loan size...limit -customer exposure -sector industry exposure 1 / 2
Banking risks & risk management Questions with Complete Solutions (Latest 2025) Interest rate risk (asset side) - Correct Answers ✅- the probability of a decline in the value of an asset resulting from unexpected fluctuations in interest rates -price charged for money -assets with fixed IR are bad for banks.. bad with high IR -asset with floating IR will be repriced to reflect any change in IR so NIM is managed bal asset & liability banks use duration analysis i.e average life of an asset/ liability rather than simple maturity Investment risk (liability side) - Correct Answers ✅- refinancing risk probability of incurring losses relative to the expected return on the capital you put into your investments -banks have mismatch btwn maturity of liabilities & assets.short duration liablities need to be renewed regularly but chaning market conditions may change the cost. NIM may change
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