Question

Insolvency risk at a financial intermediary (FI)is the risk:______.

a) that promised cash flows from loans and securities held by FIs may not be paid in full.
b) incurred by an FI when the maturities of its assets and liabilities do not match.
c) that a sudden surge in liability withdrawals may require an FI to liquidate assets quickly at fire sale prices.
d) incurred by an FI when its investments in technology do not result in cost savings or revenue growth.
e) risk that an FI may not have enough capital to offset a sudden decline in the value of its assets.

Answer 1

Option e is the correct approach.

Step-by-step explanation:

• The possibility that a person or, in particular, a corporation will not be able to meet its financial. Bankruptcy risk goes up if the entity or company seems to have no working capital or handles its finances poorly. Financial institutions evaluate the possibility of bankruptcy before deciding whether to offer a loan. It is often referred to as insolvency risk.
• The FI seems to be an organization that serves as an agent amongst involved individuals to a financial exchange, including financial institutions, hedge banks, mutual funds as well as private investors.

Other decisions are taken aren't relevant to the situation. So that alternative e was its right one.