Market risks
The main function of banks on the markets (financial, currencies, derivatives, etc.) is to intervene on behalf of their customers: so the risk remains risk one customer.
Definition
This one is the most dangerous and common risk a bank has to face; this happens every time a customer does not respect his financial commitments with the bank; most of the time, this is the reimbursement of a loan.
Definition
This risk comes from the variation of foreign exchange rates and appears when a bank has assets and debts in foreign currencies. Depending on the variation, the situation of the bank will be as follows.
Definition
This kind of risk is the core of the banking business which consists in granting a loan from collected funds. The interest rate risk anises when the cost of the resources is higher than the interest obtained from the loans.
Different kinds of risks
Just like any company, credit institutions have to face many constraints; because of their type of activity and their economic role, three main constraints can influence their strategy.
Many activities can be found in this pole; they are managed outside the credit institution for financial, fiscal or juridical reasons. We can describe four of them.
International operations
1 Objectives may be different:
To accompany their customers when they invest abroad
To develop a standard banking activity
During the last ten years, economic evolutions, disintermediation, internationalization and technological evolutions have contributed to the development of market activities.
This function, totally dedicated to customers, relies on sales representatives and the branch network. It happens to be the core activity and the source of profitability of commercial banks.
Since banks have to manage the financial assets of their clients, a tight control of the treatment will consist in steering the flows and updating the stocks.
