Question

True/False

a.. The marginal mortality rate is the probability of a bond or loan defaulting in any given year after it is issued.

1. True
2. False

b.. Foreign exchange rate risk occurs because foreign exchange rates are volatile and can impact banks with exposed foreign assets and/or liabilities.

1. True
2. False

c.. Exactly matching the maturities of assets and liabilities will provide a perfect hedge against interest rate risk for an FI.

1. True
2. False

d.. Many of the various risks faced by an FI often are interrelated with each other.

1. True
2. False

e. One method of guarding against credit risk is to assess a risk premium based on the estimate of default risk exposure that a borrower carries.

1. True
2. False

Answer 1

Answer to first question in the list: TRUE Reason: In banking and financing market, there is a concept called morality rate estimation. Morality rate describes the percentage of borrowers defaults loan repayment, either periodic installment payment or principal repayment or both. Technically, morality rate describes the default experience on all past loans offered but without considering quality thereon. On the other hand, marginal morality rate describes change in defaults of loans with respect to change in any year after the loan is issued. So, this scenario is explained as "the marginal mortality rate is the probability of a bond or loan defaulting in any given year after it is issued", making given statement as a true statement.