FIN 701 Study Guide - Interest Rate Risk, Foreign Exchange Risk, Credit Risk

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Off-balance-sheet items usually appear below the bottom line, frequently as footnotes on financial statement. Contingent assets and liabilities assets and liabilities off the balance sheet that potentially can produce positive or negative future cash flows for an fi. Fees from obs activities provide key source of non-interest income for many fis. Use obs activities to reduce or manage interest rate risk, foreign exchange risk, and credit risk exposures. Loan commitment contractual commitment to make a loan up to a stated amount at a given interest rate in the future. Loans sold loans originated by fi and then sold to other investors that (in some cases) can be returned to the originating institution in the future if the credit quality of the loans deteriorates. Off-balance-sheet (obs) asset an item or activity that, when a contingent even occurs, moves onto asset side of the balance sheet.

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