Question

1. In your own words, explain via the use of examples, the following commercial bank risks as well as their impact on commercial banking activities: (i) Market risk; and (ii) Operational risk

Answer 1

Mrket risk in commecial banking-

Market risj refers to the risk for the change of rate of interest, inflation, change in price of stock, change if rate of forieng exchange etc. All the commercial bank for doing their business need to take the market risj\ks. This can be calculated by various techniques such as= VAR-Value at risk.

Example-decrease in the value of stocks or commodity where they have high exposure.

Opeartional risk-

Operational risk is due to internal and external failure. Opearation is risk is mainly result of erroors, breaches, interuption or damages can be intentional or accidental. Under basel operations risk is discussed.

Example-Hacking of data from computer.