Describe the risk exposure(s) in the following financial transactions. Identify which transactions are influenced by interest rates or interest income. (CAUTION: Some can be influenced by both!)
Risk Types: Interest rate risk, Credit risk, Technology risk, Foreign exchange rate risk, Country or sovereign risk
Financial Transactions
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Risk Type
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Describe and justify risk type
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Interest Rate or Interest Income?
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A bank finances a $10 million, six-year fixed-rate commercial loan by selling one-year certificate of deposit.
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An insurance company invests its policy premiums in a long-term municipal bond portfolio.
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A French bank sells two-year fixed-rate notes to finance a two-year fixed-rate loan to a British entrepreneur.
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A Japanese bank acquires an Austrian bank to facilitate clearing operations.
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A bond dealer uses his own equity to buy Mexican debt on the less developed country (LDC) bond market.
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A securities firm sells a package of mortgage loans as mortgage-backed securities.
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Describe the features of the method you would choose to measure the interest risks identified.
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