Heritage Bank is a medium-sized financial institution headquartered in Toowoomba, Queensland, Australia. Heritage has existing bonds on issue and is seeking to raise additional capital by a further bond issue. As global economic and political uncertainties abate, the treasury management team at Heritage have become increasingly concerned about the possibility of rising interest rates in Australia and the subsequent downward pressure that such a move may place on its key market (mortgages on homes).
(a) Define financial risk and identify five major financial risk categories.
(b) Discuss the interrelationships that are likely to eventuate between the five risk categories you identified in (a).
(c) What would you advise Heritage to do to manage the risks it confronts?
