ØFinancial risk associates with
the financial transactions of NRB in terms of loans and investment. It can
also occur due to change in market scenario such as change in interest rate,
change in exchange rate, change in security price in market etc. It can be
further segregated into three risk elements.
a. Credit risk arises from the potential that
counterparty is either unwilling to perform its obligation or its ability to
perform such obligation is impaired resulting in economic loss to the
institution.
b. Liquidity risk is the potential that an institution will
be unable to meet its obligations as they become due. Liquidity risk can be
further subdivided into two segments;
i. Funding Liquidity risk is an inability to liquidate
assets or obtain adequate fund at the time of requirement.
ii. Market Liquidity risk is an
inability of assets to be sold out without inducing a significant movement in
the price and with minimum loss of value.