8 Questions
Which of the following is true about a US financial institution's foreign exchange net exposure?
Both A and B
What is the benefit of financial holding companies aggregating their foreign exchange exposure across all units?
It allows them to reduce their net exposure across all units
Which of the following is an example of a balanced portfolio?
A portfolio with matching foreign currency assets to liabilities in a given currency
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.
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.
What happens if a bank's equity falls below the regulatory minimum?
If a bank's equity falls below the regulatory minimum, the bank falls into trouble.
What is net worth in the context of a bank?
Net worth refers to the bank's equity value.
How does credit risk impact a bank's net worth?
Credit risk can lead to loan defaults, resulting in a decrease in the bank's net worth.
Test your knowledge on managing foreign exchange exposure for US financial institutions. Learn how to reduce net exposure through matching assets and liabilities and offsetting imbalances in the trading book. Discover how financial holding companies can aggregate exposure across units to minimize net exposure.
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