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Week Four Individual Assignment: Financial Transaction Risks
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
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.

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Week Four Individual Assignment Financial Transaction RisksDe.docx

  • 1. Week Four Individual Assignment: Financial Transaction Risks 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 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.
  • 2. 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.