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Essay / Research Paper Abstract
This 3 page paper considers different risk assessment tools that can be used by commercial banks. Those considered are maturity gap, scenario analysis, simulation analysis and value at risk. Each model is described with the value at risk model in the most detail. The bibliography cites 5 sources.
Page Count:
3 pages (~225 words per page)
File: TS14_TEriskcb.rtf
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Unformatted sample text from the term paper:
within commercial banking there are some additional risks. Not only are there market risks there is also the asymmetry of information, as there is as reliance of honestly within commercial
banking that is less prevalent within investment or merchant banking. There are a range of models that can be used, each has advantages and disadvantages, but all may indicate
the level or risk and be used to mange risk through the information they provide. The maturity gap looks at the mismatch that exists between the maturity of assets of
the banks, these are the loans they make, as these earn them interest, and the liabilities they have, these are the deposits as these are the funds that incur expenses
in the form of interests. This is calculated by taking the different gaps and then multiplying them out by the evaluated potential interest rate changes. This is a form of
analysis that has now been seen to be out of date as there are many more accurate tools available (American Stock Exchange, 2003). Scenario analysis looks at a range
of different interest rates that may pervade and then calculates the way this may impact on the bank, such as increased profits or losses. The resulting estimate may then be
used for planning in managing the risk and undertaking any measure required to reduce the risk. This is a tool that can be subjective but may still give value.
There will also need to be assumption made regarding the inflow of income such as mortgage payments, which may also be variable and unpredictable. There may also be other elements
which are not allowed for (Milligan, 2002). Simulation analysis has a grounding in the historical performance of portfolio that is being measured or assessed. The range of potential variables is
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