Answer to Question #99807 in Financial Math for fatima

Question

Q4) Describe the six major risks of financial institutions? And also the methods that can be used in order to reduce interest rate risk and credit risk?

Answer 1

The six major risks of financial institutions are: credit risk, interest rate risk, liquidity risk, underwriting risk, operating cost risks, and market risk. Forward contracts, futures, caps, options and swaps can reduce interest rate risk.

You can check a new customer's credit record, use credit limits, set clear credit terms of sales, use credit and/or political risk insurance to reduce credit risk.