Exam 7: Risks of Financial Institutions

The increased opportunity for a bank to securitize loans into liquid and tradable assets is likely to affect which type of risk?

An FI is exposed to reinvestment risk by holding longer-term assets relative to liabilities.

An advantage FIs have over individual household investors is that they are able to diversify away credit risk by holding a large portfolio of loans to different entities.This reduces

Bank of the Atlantic has liabilities of $4 million with an average maturity of two years paying interest rates of 4.0 percent annually.It has assets of $5 million with an average maturity of 5 years earning interest rates of 6.0 percent annually.What is the bank's net interest income in dollars in year 3,after it refinances all of its liabilities at a rate of 6.0 percent?

An FI that finances long-term fixed rate mortgages with short-term deposits is exposed to

Because the economies of the U.S.and other overseas countries have become more integrated,the risks of financial intermediation have decreased.

Managerial monitoring efficiency and credit risk management strategies affect the risk of the loan portfolio.

During a liquidity crisis assets might be sold at a loss because of the rising interest rates caused by financial institutions attempting to raise funds.