Reference no: EM133037662
Below are two situations, each describing a certain risk in banking.
1. Two employees of Common Union Bank enter into positions in the options market during the Covid crisis. The size of the positions is larger than their mandate, but they are able to conceal this fact to their superior. The employees reason that they know what they are doing and are convinced they will generate substantial profits for the bank during these volatile times.
2. Darling Bank & Trust, a bank headquartered in Australia has issued a large volume of loans to corporations in India. Currently, 85% of loans on Darling Bank & Trust's balance sheet are issued in Indian Rupee, while all deposits are in Australian Dollar.
For each situation:
a. Identify the risk from the bank's point of view, i.e. name the risk.
b. Outline a scenario in which the risk materializes, and describe how the bank is affected. If applicable, use the (balance sheet) numbers provided. c. Outline one (1) way in which the bank may address the scenario from b. If applicable, use the (balance sheet) numbers provided.