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Transaction Risk Essay

661 words - 3 pages

University of Phoenix Material

Week Four Individual Assignment: Financial Transaction Risks

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 |Risk Type |Describe and justify risk type |Interest Rate or |
| ...view middle of the document...

| |
|An insurance company invests its policy premiums in a long-term municipal bond portfolio.|Interest Risk |This example is an interest rate risk because the rate of |Both, Interest Rate and|
| | |returns on the long-term municipal bond portfolio can |Interest Income |
| | |increase or decrease as a result of the what the interest | |
| | |rate may be doing | |
|A French bank sells two-year fixed-rate notes to finance a two-year fixed-rate loan to a |1) Credit risk |This example is credit risk because the borrower may default |Both, Interest Rate and|
|British entrepreneur. |2) Foreign exchange |on the loan. From the prospective of being a foreign exchange|Interest Income |
| |rate risk |risk is because involves a multi-currency transactions such| |
| |3) Country/ sovereign|as British Pounds. Country Sovereign because the transaction | |
| |risk |involves two different countries | |
|A Japanese bank acquires an Austrian bank to facilitate clearing operations. |1) Interest rate risk|This example has all of the risk. The interest rate that will|Both, Interest Rate and|
| |2) Technology risk |be issued on the money that is being lent & by assuming the |Interest Income |
| |3) Credit risk |credit & interest rate. In reference to the technology risk | |
| |4) Foreign exchange |this can occur with the merger of two companies as they would| |
| |rate risk |more than. Credit risk, anytime someone lends money there is | |
| |5)...

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