06-09-2011, 05:16 PM
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 ?
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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