The French bank BNP Paribas (rated AAA) intends to set up a subsidiary office in Cambodia (Cambodia has a sovereign credit rating of a single B by Standard and Poors). BNP Paribas has global assets of about US$2,400 billion (ranking it as one of the largest banks by assets last year). This local subsidiary will try to develop bank-lending business. The major market sector targeted by BNP Paribas is the restructuring of fixed-rate long-term loans to local Cambodian firms. BNP Paribas hope to have Cambodian assets of US$500 million within 2 years.

  1. (a) Ignoring credit risk concerns discuss three key financial risk management issues that are of concern for BNP Paribas ?
  2. (b) Explain, using key risk management products or techniques, how the bank could manage the three risks mentioned in (a).