How Banks cope with Risk and Liability? (CH 15)

Question 1

What could banks do if a loan has a high risk?

Answer 1

• Raise interest Rates
• Reduce the size of the loan

Question 1

What’s a risk for the bank of lending Capital and the impact it has on markets?

Answer 1

That capital might not be paid back which would result in a loss for the bank which would influence interest rates and exchange rates in the market and globally

Question 2

How does Banks monitor risks?

Answer 2

• Check credit score
• Conduct Market Research
• Monitor firm against competitors
• Following regulations
• Use clients deposits ensuring less risk

Question 3

Define Unlimited Liability and how it can impact owner of a firm?

Answer 3

Where owners are fully responsible for all debts and liabilities gathered by a firm.

If firm cannot meet the financial obligations then the owners personals assets can be taken to fulfil debt.

Question 4

Define Limited Liability?

Answer 4

If a firm cannot pay it’s debts the owners aren’t personally responsible.