Lecture 3

Question 1

difference between risk and uncertainty

Answer 1

risk : u dont know the outcome but u can measure the odds

uncertainity : u dont know the outcome but u cannot measure the odds

Question 2

types of risk ?

Answer 2

market risk
interest rate risk
credit rate risk
liquidity risk
operational risk
business risk
strategic risk
reputational risk

Question 3

market risk ?

Answer 3

the risk of a change in organizational value due to changes in prices

Question 4

interest rate risk?

Answer 4

it is risk that affect the value of your organization because there is a mismatch between the maturities of assets and liabilities

● refinancing risk : risk that the cost of rolling rolling over funds could br higher than the return earned on asset
● reinvestment risk :when assets mature quicker than liabilities

Question 5

credit rate risk

Answer 5

risk of chsnge in value due to a change in counterparty creditworthiness

Question 6

liquidity risk

Answer 6

the risk of change in value to a sudden surge in liability withdrawals which may leave a bank in position of having to liquidate assets in a very short period of time and at low prices

Question 7

strategic risk

Answer 7

wrong strategy

Question 8

business risk

Answer 8

risk change in value due to changes in macro economic enviroment

Question 9

reputational risk

Answer 9

risk of change in value due to the loss of confidence