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Chapter 7: Problem
15. What is credit risk? Which types of FIs are more susceptible to this type of risk? Why?
30. What is market risk? How does this risk affect the operating performance of financial institutions? What actions can be taken by an FI’s management to minimize the effects of this risk?
Chapter 8: Problem
21. What are some of the weaknesses of the repricing model? How have large banks solved the problem of choosing the optimal time period for repricing? What is runoff cash flow, and how does this amount affect the repricing model’s analysis?
Chapter 9
1. What is the difference between book value accounting and market value accounting? How do interest rate changes affect the value of bank assets and liabilities under the two methods? What is marking to market?
2. What are the two different general interpretations of the concept of duration, and what is the technical definition of this term? How does duration differ from maturity?
12. How is duration related to the interest elasticity of a fixed-income security? What is the relationship between duration and the price of the fixed-income security?
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Running Head: GF510 UNIT 1 ASSIGNMENT 1
GF510 Unit 1 Assignment 1
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GF510 UNIT 1 ASSIGNMENT 1
GF510 Unit 1 Assignment 1
Chapter 7
Question 15
Credit risk is a term used in economics to denote the possibility of a borrower not be able to meet
their contractual obligations towards the payment of the dues in lieu. The following are the types
of financial institutions which are more susceptible to this kind of risk. They include, smallmedium enterprises, cooperative societies, small money lending institutions, brokerage firms and
insurance companies (Lanstein & Sharpe, 2018). The reason why they are susceptible is because
of; first, the nature of the market. For instance, the insurance business is a risky business and incase
of large compensations, they may be forced to borrow and fail to pay. Secondly, the aspect of
recurrent expenditure, where the expenditure surpasses their income.
Question 30
Market risk is the risk based on the fact that the value of an item may decrease, as a result of
ch...