question archive By virtue of holding onto significant amounts of government debt, banks are often significantly exposed to sovereign risk
By virtue of holding onto significant amounts of government debt, banks are often significantly exposed to sovereign risk
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By virtue of holding onto significant amounts of government debt, banks are often significantly exposed to sovereign risk. What other two types of risk is this particular banking risk closest to?
a. Currency risk and operational risk.
b. Credit risk and national risk.
c. Credit risk and operational risk.
d. Currency risk and market risk.
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Credit risk and National risk
Explanation: the sovereign risk is a risk that a government of a state will default in paying back the debt it has borrowed. The credit risk also refers to a risk of default in the redemption of borrowed debt. Now, these two risk represents a natuonal risk because in case a sovereign risk arises, the creditworthiness of the state comes into a scanner and it reflects a bad financial position of the whole country. This is because the government which is running the country has fall short of money to repay its debts.
