Which of the following is when an investment bank purchases securities outright in case it misjudged the state of the market and it may have to sell the securities at a lower price than what was guaranteed?

Question

Quizplus · Accepted Answer

Principal risk refers to the risk that an investment bank may suffer losses due to adverse movements in the market value of securities it has purchased outright. If the market value of these securities decreases, the investment bank may have to sell them at a lower price than the guaranteed price, resulting in losses to the bank. Credit risk refers to the risk of counterparty default, liquidity risk refers to the risk of not being able to sell a security quickly, and default risk refers to the risk that a borrower will fail to meet their debt obligations.

Which of the Following Is When an Investment Bank Purchases