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Question
The following are the net currency positions of a U.S. FI (stated in U.S. dollars).
Note: Net currency positions are foreign exchange bought minus foreign exchange sold restated in U.S. dollar terms.
How would you characterize the FI's risk exposure to fluctuations in the yen/dollar exchange rate?
A. The FI is net short in the yen and therefore faces the risk that the yen will rise in value against the U.S. dollar.
B. The FI is net short in the yen and therefore faces the risk that the yen will fall in value against the U.S. dollar.
C. The FI is net long in the yen and therefore faces the risk that the yen will fall in value against the U.S. dollar.
D. The FI is net long in the yen and therefore faces the risk that the yen will rise in value against the U.S. dollar.
E. The FI has a balanced position in the Japanese yen.
Answer
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