As commercial banks move from their traditional banking activities of deposit taking and lending and shift more of their activities to trading, they are more subject to A.political risk.B.market risk.C.credit risk.D.sovereign risk.E.liquidity risk.
Question
As commercial banks move from their traditional banking activities of deposit taking and lending and shift more of their activities to trading, they are more subject to A.political risk.B.market risk.C.credit risk.D.sovereign risk.E.liquidity risk.
Solution 1
B. Market risk.
As commercial banks shift more of their activities to trading, they become more exposed to market risk. Market risk is the risk of losses in positions arising from movements in market prices. This includes changes in interest rates, currency exchange rates, commodity prices, and equity prices. While banks also face market risk in their traditional activities, the level of risk is typically higher in trading activities due to the potential for rapid and significant price movements.
Solution 2
B. market risk.
As commercial banks shift more of their activities to trading, they become more subject to market risk. Market risk is the risk of losses in positions arising from movements in market prices. This is because trading activities, such as buying and selling securities, are directly affected by changes in market prices. If the market moves in an unfavorable direction, the bank could potentially incur significant losses.
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