What sort of risk is a financial institution exposed

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Question - Both Goldman Sachs and Merrill Lynch (a multinational investment bank and a financial services company) are currently facing civil fraud charges for allegedly making misleading representations about the risks involved in speculative structured finance transactions. Similarly, a consumer protection laws on information disclosure in derivatives transactions have led to several court cases involving big financial institutions. The financial institutions are contesting that their treatment as 'sophisticated investors' by investment banks denied them material information about the riskiness of the derivatives transactions in which they engaged.

What sort of risk is a financial institution exposed to in the above examples? As a financial institution manager, what approach (s) can you take to reduce exposure to this risk? Explain your answer.

Reference no: EM132983763

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