How Can Market Risk Be Defined in Absolute Terms

question 57

Multiple Choice

How can market risk be defined in absolute terms?

• A)A dollar exposure amount or as a relative amount against some benchmark.
• B)The gap between promised cash flows from loans and securities and realized cash flows.
• C)The change in value of an FI's assets and liabilities denominated in nondomestic currencies.
• D)The cost incurred by an FI when its technological investments do not produce anticipated cost savings.
• E)The capital required to offset a sudden decline in the value of its assets.

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Definitions:

Marginal Decision Rule

A principle stating that an action should be taken if, and only if, the marginal benefit exceeds the marginal cost.

Profit-Maximizing

The strategy or procedure for altering sales and production to attain the greatest possible earnings.

Market Price

The amount of money for which a good or service is offered, sold, or bought in the market.

Perfectly Competitive

A market structure characterized by many sellers and buyers, homogeneous products, and free entry and exit, leading to price takers.