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CMA Final · Risk Management in Banking and Insurance · Introduction to Risk Management

Under the Basel framework, the risk that a bank may be unable to meet its payment obligations as they fall due without incurring unacceptable losses is called:

This is liquidity risk: the possibility that a bank cannot meet payment obligations when they fall due without unacceptable losses. Basis risk, concentration risk and reputational risk relate to benchmark mismatch, exposure clustering and loss of stakeholder trust respectively.

  1. ABasis risk
  2. BLiquidity riskCorrect
  3. CConcentration risk
  4. DReputational risk

Explanation

Liquidity risk is the inability to fund asset increases or meet obligations when due at reasonable cost. Basis risk concerns imperfect correlation of rate benchmarks. Concentration risk arises from large exposures to one borrower, sector or group.

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