QUESTION 1
Banks find it more profitable to lend money as the margin on lending is much higher than any other banking activity. However, banks have to assess credits risks and take necessary measures to reduce and mitigate their risks
(a) Clearly explain the following terms used in relation to credit risk analysis-
(i) Expected Loss (ii) Credit risk drivers; (iii) Operational risk under Basel II
(b) After explaining how Securitization operates, critically consider the costs of Securitization
QUESTION 2
(a) What do you understand by the terms? (i) Liquidity risk (ii) interest rate risk (iv) cash matching (iii) Liquidity Gaps
(b) Risk analysis includes risk identification, risk description and risk estimation. Discuss
QUESTION 3
(a) Provide explanation to the following terms used in risk assessment-
(i) Risk tolerance; (ii) Moral hazard (iii) dynamic risk
(b) Assess the main risk categories in insurance industry
(c) Assess the role of risk management in a modern organisation