As result of planning and setting aside funds to repay debt, substantial sums ma

Question

As result of planning and setting aside funds to repay debt, substantial sums may be accumulated in accounts at financial institutions and in long term investments. This subjects the government to which of the following types of risk?

a. Interest rate risk, custodial risk, concentration risk, and reinvestment risk.

b. Credit risk, concentration risk, interest rate risk, and market risk.

c. Concentration risk, custodial credit risk, interest rate risk, and liquidity risk.

d. Custodial credit risk, concentration risk, interest rate risk, and credit risk.

Explanation / Answer

Correct option: d. Custodial credit risk, concentration risk, interest rate risk, and credit risk.

Custodial risk (since large amount of money will be in custody of a large financial institution)

Concentration risk: (since a large amount of money is concentrated with a single institution .)

Interest rate risk: (risk from fluctuating market interest rates)

Credit risk: (risk of default by bank)

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