Re: ::: vuaskari.com ::: MGT 411 GDB solution is req

Type of risk: (Interest rate risk)

Specify the reason for choosing this risk in Bullets/ Numbers form ?
• The bank has invested the in treasury bonds for two years maturity at fix interest rate so return will be certain.
• The bank will reissue the certificate of deposits by which it will be able to pay for the certificates of deposits issued in first year. in this way it will reduce the liquidity risk.
You all may write some few reasons but also explain these ones in your own words

On Sun, Jun 12, 2011 at 5:38 AM, Chandaa <mc100403857@vu.edu.pk> wrote:

w8

 

On Sun, Jun 12, 2011 at 4:50 AM, Shoukat Aajiz <aajiz61@gmail.com> wrote:

S&K Saving Bank is a medium size bank and operating locally. It provides different financial services to individuals and businesses. In January 2011, S&K Saving Bank has issued saving certificate (certificate of deposits) for Rs. 1,000 with one year maturity at 4% interest rate.

 

 In next year bank will reissue the certificate of deposits; on reissuance interest rate on these may vary due to change in inflation rate and monitory policy.

 

With the borrowed money the bank has purchased treasury bonds for Rs 1000 at 8% fixed interest having two year maturity. Previous trend shows that interest rate may rise by 1-2 percent.  

 

Required: Keeping in view all these information, what type of risk the bank will face while entering into these transactions? Also mention the valid reason for choosing this type of risk. 

 

Hint: Write your answer in the following format.

 

Question                                                   Comments

 

Type of risk: (Give only name)                                                           ?

 

Specify the reason for choosing this risk in Bullets/ Numbers   form      ?

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Visit these groups:
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