Skip to content

FRM Part II · FRM Exam Part II · Global Financial Stability Report, April 2025, Chapter 2 (Geopolitical Risk)

A risk officer at a bank reviewing the IMF's analysis of geopolitical risk notes that a surge in geopolitical tensions can affect financial institutions through several routes. Which of the following is best described as a direct transmission channel to a bank's balance sheet?

Repricing of securities the bank holds is a direct transmission channel. Geopolitical shocks move sovereign and corporate bond prices and volatility, creating mark-to-market losses on the bank's balance sheet. Survey sentiment, slogans or branch counts do not transmit financial losses directly.

  1. AHigher volatility in a bank's own marketable securities holdings due to repricing of sovereign and corporate bondsCorrect
  2. BA general decline in consumer sentiment surveys in the bank's home country
  3. CA change in the bank's published corporate slogan
  4. DA rise in the number of branches in the bank's home country

Explanation

Geopolitical shocks reprice assets, so marketable securities held by the bank suffer mark-to-market losses directly. Sentiment surveys are indirect and not a balance sheet channel. Slogans and branch counts are unrelated to transmission of risk.

Did you get it right without looking?

One question tells you little. A timed set on Global Financial Stability Report, April 2025, Chapter 2 (Geopolitical Risk) shows your real accuracy, how long you take and where you lose marks.

Practise Global Financial Stability Report, April 2025, Chapter 2 (Geopolitical Risk)Free diagnostic mock

More Global Financial Stability Report, April 2025, Chapter 2 (Geopolitical Risk) questions