Question

Banks are expose to a wide array of risks. Key among them are Credit risk, Market risk, Operational risk as stated by bank for Bank International Settlement in the Basel II Accord and reported by banks. Discuss these forms of risks with relevant examples

Answer 1

Risks are the uncertainities faced in the activities.

The risks can be classified into two, they are

1. Systematic risk

It is the isk that happen an uncertainity in the whole industry which are unavoided.

2. Unsystematic risk

It is the uncertainity or the risks that can be avoided, which are caused due to the any activities or functions in the organisation itself.

There are different types of risks in banking they are,

1. Credit risk

It is the biggest risk that faces by the banks , where the counter parties are failed to meet the Payments. that means when someone took a loan and now not paying it back, then it is a credit risk

2. Operations Risk

It is the risk that causes the losses due to the worse functions of employees. that means if an employee made a clerickal error, if the interest calculation made wrong, these are the operational risk

3.Market risk

These are the risks, related to the market condition , mainly capital market. the interest rate, demand and supply for bank instruments are related to the market conditions, thus there is the chance for the market risks in banking.

4. Liquidity risk

it is a type of risk that has to face the operational funds. it should maintain enough liquid cash.