Credit Risk / Market Risk / Operational Risk / Liquidity Risk
Major categories of financial exposure managed by banks’ risk departments.
Detailed Description
Credit Risk / Market Risk / Operational Risk / Liquidity Risk
What is credit risk?
Credit risk is the potential for loss due to a borrower's failure to repay a loan or meet contractual obligations.
How does market risk affect financial institutions?
Market risk can lead to substantial fluctuations in portfolio value, impacting the institution's financial stability.
What are some causes of operational risk?
Operational risk can stem from human error, technological failures, or insufficient internal controls.
Why is liquidity risk important for banks?
Liquidity risk is crucial because it threatens a bank's ability to meet short-term financial obligations.
What are some risk management strategies for market risk?
Market risk can be managed through hedging strategies, asset allocation, and the use of derivatives.