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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 Euro to dollar exchange rate?
A. The FI is net short in the Euro and therefore faces the risk that the Euro will rise in value against the U.S. dollar.
B. The FI is net short in the Euro and therefore faces the risk that the Euro will fall in value against the U.S. dollar.
C. The FI is net long in the Euro and therefore faces the risk that the Euro will fall in value against the U.S. dollar.
D. The FI is net long in the Euro and therefore faces the risk that the Euro will rise in value against the U.S. dollar.
E. The FI has a balanced position in the Euro.
Answer
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