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
|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.