1.A Bank Finances a $10 Million, Six-Year Fixed-Rate Commercial Loan by Selling One-Year

1.A bank finances a $10 million, six-year fixed-rate commercial loan by selling one-year certificate of deposit.
It is an interest rate risk as well as credit risk. It is an interest rate risk because change in interest rate can change the value of the fixed rate assets such as commercial loan. It is also a credit risk because cash flows from the loan may not be paid in full. It is exposed to interest rate as well as interest income.
2. An insurance company invests its policy premiums in a long-term municipal bond portfolio.
It is an interest rate risk because returns on the portfolio may increase or decrese due to interest rate movements. It is exposed to interest rate as well as interest income.
3.A French bank sells two-year fixed-rate notes to finance a two-year fixed-rate loan to a British entrepreneur.
First of all, it is a foreign exchange risk because it involves multi-currency transactions, ie, Euro and British pounds. Exchange rates between two currencies can change significantly over the period. Further, it is also a credit risk as loans may not be repaid.
4. A Japanese bank acquires an Austrian bank to facilitate clearing operations.
This transaction is exposed to various kinds of risk as acquisition of a foreign bank will not only result in foreign exchange risk due to involvement of multiple currencies, but will also be exposed to interest rate risks, credit risks and technology risks as well as country risks. For example, if the technology of the two companies fail to merge together, it can result in technology related risks. Similarly, political or other problems in austria can cause trouble to the acquiring bank's operations. Similarly, by acquiring the austrian bank, it is assuming credit and interest rate risks of the bank.
5.A bond dealer uses his own equity to buy Mexican debt on the less developed country (LDC) bond market.
First of all, it involves interest rate risks due ot the exposure on the debt whose interest rate may fluctuate. Secondly, it involves foreign currency risks as it is in another currency. It is also related to credit and country risk as it involves debt which may not be repaid as well as exposes dealer to country risks of Mexico. It is exposed to interest rate as well as interest income.
A securities firm sells a package of mortgage loans as mortgage-backed securities.
It is interest rate risks due to exposure to changes in interest rate on the loand, as well as credit risks as loans may not be repaid. It is exposed to interest rate as well as interest income.
Features of the method that I would chose to measure the interest rate risks identified.
For a bank, one of the methods is Duration Gap. "This method of measuring risk analysis compares the price sensitivity of a bank's total assets with the price sensitivity of its total liabilities to assess the impact of potential changes in interest rates on stockholders' equity."
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