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1.         To gain thebenefit of _______________, a bank makes various types of loans, tovarious types of borrowers.

A.     guaranteedincome
B.      diversification
C.      more firm-specific riskexposure
D.     reduced operational risk
E.      reduced off-balance-sheet risk

2.         Argentinaunilaterally told its creditors in 2005 that it would henceforthrepay only $0.30 for every $1.00 of its debt that was outstanding.Argentina’s creditors had been exposed to ______________ risk,which was then realized.

A.    sovereign
B.      operational
C.      technology
D.     interest rate
E.      (b) and (c)

3.         Many banks lostconsiderable amounts on failing real estate mortgage loans aboutthe time of the Financial Crisis of 2007-08. The risk of suchoccurrences would be categorized as:

A.    off-balance-sheet risk
B.      operational risk
C.      credit risk
D.     technology risk
E.      country or sovereign risk

4.         All of HometownBank’s outstanding loans are fixed interest rates with maturitiesover two years. Hometown’s deposits all have maturities less thansix months, either overnight checking account deposits or six-monthCDs. From this fact alone, Hometown is facing:

A.     Creditrisk
B.      Insolvency risk
C.      Liquidity risk
D.     Operational risk
E.      Interest rate risk

5.         If anunanticipated increase in deposits withdrawals forces a SavingsInstitution to sell balance sheet assets at “fire sale” prices, theSI was exposed to ____________.

A.     creditrisk.
B.     liquidity risk.
C.      interest rate risk.
D.      sovereign risk.
E.      technology risk.