Question

Your bank has a customer in England and needs cash for a project there. You are concerned about what will happen to this loan when it funds, but this client is important to the bank and you want to do it. What sort of risk are you concerned about, and how can you remediate it?

Group of answer choices

a. Underwriting risk; tighten credit requirements.
b. Liquidity risk; enter the repo market.
c. Currency risk; arrange a currency swap.
d. Interest rate risk; arrange an interest rate swap.

Answer 1

d. Interest rate risk; arrange an interest rate swap.

Step-by-step explanation:

The underwriting risk is due to default of the loan and is not relevant.

The liquidity risk is irrelevant here as there is no problem in disbursing the loan. The currency risk is due to two parties that have assets or business operations across borders that are exposed to currency risk that may create profits or losses to either party.

Therefore, Interest rate risk; arrange an interest rate swap.