Evaluate the risk exposure to commercial bank whilst they endeavour to Essay

Evaluate the risk exposure to commercial bank whilst they endeavour to maximize their revenues deep down profitable lending - Essay ExampleIt is the most common risk experienced by banks in lending. It occurs when customers are unable to meet their obligations, fall repayable and causes the bank to suffer a loss. Different bank transactions that cause the credit risk may import from the lending made to the governments, individuals, and companies. Second, it may result from lending silver in exchange for security bonds. Commercial banks also exchange lending with shares, swaps, trade finance transactions, and other items. The probability of risk increase due to the different items that may cause the credit risk. The risk increase in the event, the bank fails to evaluate the customer credit worthiness. It is more probable to sustain a huge sum of m unrivaledy when commercial banks offer huge loans to customers without proper credit rating.The risk results from market rate fluctuat ions. Normally, the banks allow customers to deposit money in the bank at a certain rate. Subsequently, banks give out the money in the form of loans at a rate higher than the one paid to depositors. Commercial banks risk a loss when the government control lowers the lending amuse rates. If the lending interests rates decrease below the interest rate provided to depositors commercial banks may experience difficulties paying back the money to the depositors. The probability and the severity of loss increase when the government exercises ripe controls in the monetary market. The interest rate risk affects the currents earnings of a firm and the present value of the future cash flows due to changes in the interest factor value.The depositors in a bank may train their deposits from the bank any time as long as they do not scotch the terms agreed. At the same time, the bank may offer huge sums of loan against few deposits made by customers. In case the customers decide withdraw thei r deposits, the funds will be unavailable. The liquidity risk is the probability that the bank will