There are two deliverables for this assignment. You will fill out and submit the Financial Transactions Risk Table and you will write and submit a 1,050- to 1,400-word paper.
Address the following in your paper:
- Describe risk exposures by filling out the Financial Transaction Risks Table.
- Describe features you would choose to measure interest risks and identify which transactions are influenced by interest rates or income. Some are influenced by both.
|Financial Transactions||Risk Type||Describe and justify risk type||Interest Rate or Interest Income?|
|A bank finances a $10 million, six-year fixed-rate commercial loan by selling one-year certificate of deposit.|
|An insurance company invests its policy premiums in a long-term municipal bond portfolio.|
|A French bank sells two-year fixed-rate notes to finance a two-year fixed-rate loan to a British entrepreneur.|
|A Japanese bank acquires an Austrian bank to facilitate clearing operations.|
|A bond dealer uses his own equity to buy Mexican debt on the less developed country (LDC) bond market.|
|A securities firm sells a package of mortgage loans as mortgage-backed securities.|
|Describe the features of the method you would choose to measure the interest risks identified.|
Describe the risk exposure(s) in the following financial transactions.
Identify which transactions are influenced by interest rates or interest income. (CAUTION: Some can be influenced by both!)
Risk Types: Interest rate risk, Credit risk, Technology risk, Foreign exchange rate risk, Country, or sovereign risk