Aruma Puduma Lokaya

Market risk Market risk is the risk that changes in equity, bond and commodity prices, as well as movements in foreign exchange rates and interest rates may adversely affect the bank’s trading and banking books. It can be categorized mainly into three types. Equity and securities price risk HNB shows its equity portfolio outperformed in the equity market over the last two years (2014-2015). Equity risk of trading portfolio as in the statement is 4.29%. Further hikes in US interest rates may affect to decline in local equity and bond markets since high interest seeking foreign investors are returning to the more liquid and developed markets. Then the security prices may go down. As an effect of this, interest rate risk is minimal as over 70% of advances and 90% of deposits can be re priced within one year. HNB shows they have affected from decline in bond prices due to increase of interest rates. Commercial bank says they got an impact on profit or loss and equity as a result of...