Explain Operational Risk ?
The risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external eventsFor emergence of such a risk four causes have been mentioned and they are people, process, systems and external factors. (a) People risk – Lack of key personnel, lack of adequate training/experience of dealer (measured…...
Explain Credit Risk ?
Credit risk is defined as the possibility of losses associated with diminution in the credit quality of borrowers or counterparties. In a bank’s portfolio, losses stem from outright default due to inability or unwillingness of a customer or counterparty to meet commitments in relation to lending, trading, settlement and other financial transactions. Alternatively, losses result…...
Explain Foreign Exchange Risk?
Foreign exchange risk may be defined as the risk that a bank may suffer losses as a result of adverse exchange rate movements during a period in which it has an open position, either spot or forward, or a combination of the two, in an individual foreign currency. The banks are also exposed to interest…...
Explain Interest Rate Risk?
Interest rate risk is the risk where changes in market interest rates might adversely affect a bank’s financial condition. The immediate impact of changes in interest rates is on the Net Interest Income (NII). A long term impact of changing interest rates is on the bank’s net worth since the economic value of a bank’s…...
Explain Liquidity Risk?
Liquidity risk is the potential inability to meet the bank’s liabilities as they become due. It arises when the banks are unable to generate cash to cope with a decline in deposits or increase in assets. It originates from the mismatches in the maturity pattern of assets and liabilities. Measuring and managing liquidity needs are…...
Explain Market Risk ?
Market risk may be defined as the possibility of loss to a bank caused by changes in the market variables. The Bank for International Settlements (BIS) defines market risk as āthe risk that the value of on or off-balance sheet positions will be adversely affected by movements in equity and interest rate markets, currency exchange…...