Explain five types of risk that FI might face

Explain five types of risk that FI might face

Expert Solution

Financial risks which are faced by the financial institutions are Market Risk, Credit Risk, Liquidity Risk, Operational Risk, and Legal Risk.

Market Risk : This type of risk arises due to the fluctuations in the prices of financial instruments.
Credit risk : This type of risk arises when the customers of the financial institutions fail to fulfill their obligations towards the FI. It is the possibility that a customer may default on loans.
Liquidity Risk : This type of risk arises out of an inability of the company to execute transactions. Liquidity risk is the easily ease convertibility of its assets into cash.
Operational risk : This type of risk arises out of a company's ordinary business activities such as mismanagement, technical failures, fraud risk, personnel problems etc
Legal risk : These types of financial risk are the risks related to legal constraints such as lawsuits. These are the financial losses out of legal proceedings.

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