The Influence of Credit Risk in Financial Institutions Table of Contents Table of Contents 2 Title 3 Introduction 3 Aim of the Study & Specification of Objectives 4 Literature Review 5 Methodology & Data 8 Critical Reflection 10 Conclusion 11 Time Schedule 11 Limitations 11 References 13 Title The title of the research proposal is “The influence of credit risk in financial institutions”…
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Financial institutions primarily play a role of assisting the flow of funds from various ‘individual surplus units’ to ‘deficit units’. Financial institutions comprise of commercial banks, finance companies, savings institutions, credit unions, money market funds, mutual funds, pension funds and insurance companies (Madura, 2008). Adequate management of the credit risk in the financial institutions is a critical aspect for the growth and survival of the institutions. If a financial institution fails to control risks like that of credit risk then it can lead to insolvency (Wenner & Et. Al., 2007). The recent financial crisis had a major impact on the worldwide financial system. Managing risk and capital requirements in the various financial institutions have turned out to be an utmost necessity. Financial institutions generally have a quite complex structure related to liability. Credit risk of a financial institution is considered as a function of market valuations of the institution’s asset portfolio and its leverage (Chen & Et. Al., 2009). Thereby, the study aims to critically discuss the influence that the credit risk generally has on financial institutions. Aim of the Study & Specification of Objectives The aim of the study is to recognise the significant and influential capabilities of credit risk in financial institutions. The relevance of the study can be judged from the fact that in terms of financial risks that a financial institution face, the credit risk or default risk is considered to be one of the most significant and critical risk factors that every financial institution endeavours to mitigate to protect the financial institution and its consumers from insolvency. Objective of the study is to analyse and identify influence of different credit risks on financial institutions such as default risk; credit spread risk, sovereign risk, downgrade risk and counterparty risk. Therefore, a few questions that can be considered are: What is the credit risk? What is the influence of credit risks on financial institutions such as commercial banks, insurance companies, savings institutions and others? What are the ways by which credit risks are being mitigated by financial institutions? In order to find answers to these questions scholarly articles, books, journals and others will be observed and used to identify the relevant aspects related to the study. Literature Review According to Investopedia (2011), credit risk can be identified as a risk if an individual or a company will be incapable to pay the principal or contractual interest on its debt obligations. This type of risk is mainly concerned with the investors who generally hold bonds within their portfolio. Government bonds, primarily issued by the federal government, are considered to have the slightest amount of default risks as well as lowest amount of returns. Corporate bonds have a tendency to have the highest level of default risks but it also provides higher level of interest rates. Bonds that hold higher chances of being default are measured to be junk bonds, whereas, bonds that have lower chance of default are generally
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This report will address the following conditions: 1. Hazard identification 2. Dose-response 3. Exposure 4. Risk characterization From these data, the report will recommend a course of action regarding the relative risks of using Malathion and no application.
The approach is best suited for the objectives of the research which are to study the causes and consequences of the law of restricting the lay-off of emirates citizens and the global credit crisis. In accordance with the perspectives the study will be undertaken by following an inductive to deductive approach.
The framework for the preparation and presentation of financial statements is ultimately used for corporate reporting. Therefore, it's important for the financial statements to contain useful information, comply with the international accounting standards and to meet the common need of its users.
However the modern banking industry is vastly different from the olden days of banking. Present day banks are commercial profit making 'organizations'. They are faced with the challenge of meeting the ever changing demands of the '3 Cs'. The 3Cs (Customer, Change & Competition) play a very crucial role in the long term stability of a bank.
Because it has reached its loanable limit in its current bank, Suburban National Bank, it plans to avail of an additional line of credit from Northrop National Bank amounting to 465,000. However, this increase in additional financing calls for a lot of considerations for the company. One of these includes the overall perceived risk of the company.
cenario. The world is undergoing a phase of transition since the beginning of this century. The financial crisis of 2008 has aggravated the reasons of this transition. The developed nations have suffered heavily from the financial breakdown of the most powerful institutions of the world and are still striving hard to overcome the effects of recession that followed after the great financial crisis.
Further, the general reasons that the economy slowly deteriorated and faced the long turf are also a part of the research. On the sidelines, the study is also, about how the crisis could have been averted by a universal practice of business ethics that would have ensured the trust of the people on the current economic system.
The author states that certain signs of coming changes in the world economy could be detected prior to the obvious appearance of credit crunch in 2008. These signs are for example: economic downturns in major economies, high-oil and high food prices which generated higher global inflation.
nomic crises were felt at the local, regional, and global level as the nations of the world moved to adjust to an ever-changing environment of monetary standards. The global depression of 1932 caused nations around the world to rethink their economic structure, their
by the organization in managing credit risk and the overall performance of the bank and how it could “Take advantage of a wealth of information, support and resources to help you make the most of international business opportunities.” (International business tools and
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