Question

1. There is a close relationship between the degree of risk and decision-making, explain this, indicating each type of risk and its relationship to investment decision-making? *

2. What is the impact of the Corona crisis on trading in the financial market? *

course name :MANAGEMENT OF COMMERCIAL BANKS

Answer 1

A. There is a very close relation between degree of risks and decision making. There are always risk takers and risk averse kind of investors. it is often said that higher risk will fetch you higher reward. So risk exposures is very important in order to making decisions regarding the level of Return an investor wants to make.

The different types of risk related to investment like credit risk, liquidity risk reinvestment risk, inflation risk. These risks have different effect on the rate of return like-

1. credit risk is related to solvency of the firm and the company where the investor is investing. the higher the credit risk the lower the return.

2. Liquidity risk is the the availability of cash flows to repay the investment. Sometimes there is liquidity crunch in the economy so that economy doesn't grow

3.inflation risk is the value of investments going down due to the rate of inflation going up.

4. Reinvestment risk is the risk associated with investment to some other asset class that could have provided with a better rate of return.

B. The impact of coronavirus has led to a surge in volatility all across the Global markets.there has been huge triggering of long term stop loss and margin calls.

The Global markets crashed into bear market territory amid fear of contagion due to coronavirus.

There is lack of trading volume as investors are refraining from trading into such volatile situation.