Term
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Definition
| Market risks arise from a bank's exposure to movement in market variables (e.g., exchange rates, interest rates, commodity prices, and equity prices). |
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Term
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Definition
| A bid is the price at which the market makers are prepared to buy. |
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Term
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Definition
| The ask price is the price at which the market makers are prepared to sell. |
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Term
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Definition
| Credit risks arise from the possibility that borrowers will fail to repay their debts. |
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Term
| If a banks cost of funds(The average interest rate paid on deposits and on the bank's debt) is 1.5% and the average interest rate charges on loans is 4%, what is the banks net interest margin? |
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Definition
| The interest margin is 4% - 1.5% = 2.5% |
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Term
| True or False, forward contracts and options are subject to market risk? |
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Definition
| True because the value of a derivatives contract depends on the underlying market variables. |
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Term
| What do bank regulators define operational risk as? |
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Definition
| Operational risk is the risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events. |
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Term
| Operational risks can arise from? |
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Definition
1. Errors in internal processes or systems.
2. Human mistakes.
3. External events that are beyond the control of the company such as: natural disasters or cyber attacks. |
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Term
| Operational risks can result in? |
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Definition
1. Financial losses
2. Legal or regulatory sanctions
3. Damage to the company's reputation
4. Other negative consequences |
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Term
| Mention seven examples of operational risk |
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Definition
1. Internal fraud
2. External fraud
3. Employment practices and work place safety
4. Clients, products and business practices
5. Damage to physical assets
6. Business disruption and system failures
7. Execution, delivery and process management |
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