A Financial Institution That Is Concerned About the Possibility That

question 94

Multiple Choice

A financial institution that is concerned about the possibility that the purchasing power of both the interest income and repaid principal on a loan will decline is concerned about which of the following?

• A)Business risk
• B)Liquidity risk
• C)Tax exposure
• D)Credit risk
• E)Inflation risk

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Definitions:

Hedge Funds

Investment funds that employ diverse, and often more complex, strategies than traditional mutual funds, including the use of leverage, derivatives, and short selling to generate returns.

Mutual Funds

Investment programs funded by shareholders that trade in diversified holdings and are professionally managed.

Maintenance Margin

The minimum equity an investor must maintain in a margin account after the purchase has been made, to keep the position open.

Initial Margin

The minimum amount of funds required to open a position in the securities market, used as a deposit to cover some of the credit risk of the counterparty.