Which of the following may occur when a sufficient number of borrowers are unable to repay interest and principal on loans,thus causing an FI's equity to approach zero?

Question

Quizplus · Accepted Answer

Insolvency risk refers to the risk of an FI becoming insolvent due to a significant number of borrowers being unable to repay their loans, leading to a decline in the FI's equity. This can happen if the FI's equity approaches zero, making it unable to meet its obligations. Therefore, insolvency risk is the most appropriate choice in this scenario. Sovereign risk refers to the risk of government default or political instability in a country, foreign exchange risk refers to the risk of changes in exchange rates affecting the value of an FI's assets and liabilities denominated in foreign currency, and liquidity risk refers to the risk of not being able to meet short-term financial obligations. These risks may also be relevant to an FI, but they are not directly related to the scenario described in the question.

Which of the Following May Occur When a Sufficient Number