Evaluate the risk exposure to commercial bank whilst they endeavour to Essay

Evaluate the risk exposure to commercial brink whilst they endeavour to maximize their revenues within profitable lending - Essay ExampleIt is the most ballpark risk experienced by banks in lending. It occurs when customers are unable to meet their obligations, fall cod and causes the bank to suffer a loss. Different bank transactions that cause the credit risk may closure from the lending made to the giving medications, individuals, and companies. Second, it may result from lending money in exchange for security bonds. moneymaking(prenominal) banks also exchange lending with shares, swaps, trade finance transactions, and other items. The probability of risk increased due to the different items that may cause the credit risk. The risk increase in the event, the bank fails to evaluate the customer credit worthiness. It is more probable to lose a huge sum of money when commercial banks laissez passer huge loans to customers without proper credit rating.The risk results from mar ket rate fluctuations. Normally, the banks allow customers to deposit money in the bank at a certain rate. Subsequently, banks give out the money in the form of loans at a rate higher than the one paid to depositors. Commercial banks risk a loss when the government control lowers the lending intimacy rates. If the lending interests rates decrease below the interest rate provided to depositors commercial banks may experience difficulties paying back the money to the depositors. The probability and the callousness of loss increase when the government exercises serious controls in the monetary market. The interest rate risk affects the currents kale of a firm and the present value of the future cash flows due to changes in the interest ingredient value.The depositors in a bank may withdraw their deposits from the bank any time as yen as they do not violate the terms agreed. At the same time, the bank may ply huge sums of loan against few deposits made by customers. In case the cu stomers decide withdraw their deposits, the monetary resource will be unavailable. The liquidity risk is the probability that the bank will