Foreign Exchange Exposure Management for US Financial Institutions

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Questions and Answers

Which of the following is true about a US financial institution's foreign exchange net exposure?

It can be reduced by aggregating exposure across all units in a financial holding company
It can be reduced by offsetting imbalances in its trading book
It can only be reduced by matching its foreign currency assets to liabilities in a given currency
Both A and B (correct)

What is the benefit of financial holding companies aggregating their foreign exchange exposure across all units?

It has no impact on their net exposure across all units
It allows them to reduce their net exposure across all units (correct)
It allows them to eliminate their net exposure across all units
It allows them to increase their net exposure across all units

Which of the following is an example of a balanced portfolio?

A portfolio with imbalances in its trading book
A portfolio with foreign currency assets and liabilities in different currencies
A portfolio with a net exposure to foreign exchange
A portfolio with matching foreign currency assets to liabilities in a given currency (correct)

What is credit risk from a bank's perspective?

Credit risk is the most serious risk faced by banks, referring to the chance that a borrower may fail to repay their debt obligations. Signup and view all the answers

How is the financial strength of a bank or financial institution determined?

The financial strength of a bank or FI is primarily captured by how much equity it has relative to the riskiness of its assets. Signup and view all the answers