Question

Consider the following different types of risks: Credit risk, Liquidity risk, Interest Rate risk, Market risk, Off-Balance-Sheet risk, Foreign Exchange risk, and Insolvency risk. What types of risks from the above do you think are particularly timely items for financial institutions to worry about today? What are some items you think might become a bigger issue in the future but are not a major concern today?

Answer 1

Taking into consideration all the risk mentioned above , I will first have them categorised in two factors.

1. Long term risk

- Liquidity Risk

- Off balance sheet risk

- Insolvency risk

2. Short term risk

- Credit Risk

- Interest rate risk

- Market risk

-Foreign exchange risk

In effect with the above two factors an financial institution should plan and procure the preventive method to tackle that risk.

So for a financial institution to worry about today should focus on the short terms risk that could effect the institutions performance in the near time for this you can create methods and plans to minimise the short term risk as mentioned above. As this risks are market dependent and cannot be assumed without proper analysis.

For all the other risk which can create problems in future an organisation need to plan and create methods to tackle the long term risk and help them minimise as this risks are performance dependent and be minimised with proper plans and executions.