Answer to Question #318106 in Finance for Naveen

Question

Which are the major risks banks are exposed to and how they mitigate it?

Answer 1

There are many risks faced by banks. They include credit, liquidity , market, and operational risks. Credit risks can be mitigated by conducting adequate research on individuals and firms before granting them loans. Liquidity risks can be reduced by holding reserves of liquid assets and through proper financial forecasting and analysis. To mitigate market risks, banks can diversify their investments and also through hedging. Operational risks can be minimized by automating workflows, hence reducing human labor.