If a future credit crunch is possible, a loan commitment may expose the FI to
A)credit risk.
B)interest rate risk.
C)sovereign country risk.
D)funding risk.
E)exchange rate risk.

Question

Quizplus · Accepted Answer

A loan commitment exposes the FI to funding risk, which refers to the risk of not being able to secure funding, or being able to secure funding only at a high cost, when needed to meet obligations arising from loan commitments, deposits, or other liabilities. A future credit crunch can make funding scarce and expensive, exposing FIs with loan commitments to funding risk. Credit risk, interest rate risk, sovereign country risk, and exchange rate risk are other types of risks faced by FIs but are not directly related to loan commitments in a credit crunch scenario.

If a Future Credit Crunch Is Possible, a Loan Commitment