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. $\begin{array}{l} \begin{array}{lll} \text {Currency}\\ \text {Canaclian Dollay}\\ \text {Euro}\\ \text {Japane se Yen}\\ \text {SWiss: Fiadc}\\ \text {British Pound.}\\ \end{array} \begin{array}{lll} \text {Net Position}\\ \text {+U.S. \$ 1,200}\\ \text {-U.S. \$ 245,900}\\ \text {+U.S. \$ 505,000 }\\ \text {-U.S. \$ 36,700}\\ \text {+U.S. \$447,900}\\ \end{array} \end{array}$ What is the portfolio weight of the Japanese yen in this FI's portfolio of foreign currency?

A) +0.18 percent. B) -36.62 percent. C) +75.20 percent. D) -5.47 percent. A) +0.18 percent. B) -36.62 percent. C) +75.20 percent. D) -5.47 percent.

The following are the net currency positions of a U.S.FI (stated in U.S.dollars). $\begin{array}{lrrrr} \text { Currency} &\text { Assets } & \text { Liabilities } & \text { FX Bought } & \text { FX Sold } \\ \text { British pound} &24,600 & 70,000 & 170,400 & 321,000 \\ \text { Yen} &31,000 & 20,400 & 250,000 & 220,000 \\ \text { Swiss franc} &10,200 & 9,800 & 8,000 & 10,800 \end{array}$ What is the FI's net exposure in the Japanese yen?

A) +30,000. B) +40,600. C) -19,400. D) -40,600. A) +30,000. B) +40,600. C) -19,400. D) -40,600.

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. $\begin{array}{l} \begin{array}{lll} \text {Currency}\\ \text {Canaclian Dollay}\\ \text {Euro}\\ \text {Japane se Yen}\\ \text {SWiss: Fiadc}\\ \text {British Pound.}\\ \end{array} \begin{array}{lll} \text {Net Position}\\ \text {+U.S. \$ 1,200}\\ \text {-U.S. \$ 245,900}\\ \text {+U.S. \$ 505,000 }\\ \text {-U.S. \$ 36,700}\\ \text {+U.S. \$447,900}\\ \end{array} \end{array}$ What is the portfolio weight of the Euro in this FI's portfolio of foreign currency?

A) +0.18 percent. B) -36.62 percent. C) +75.20 percent. D) -5.47 percent. A) +0.18 percent. B) -36.62 percent. C) +75.20 percent. D) -5.47 percent.

The following are the net currency positions of a U.S.FI (stated in U.S.dollars). $\begin{array}{lrrrr} \text { Currency} &\text { Assets } & \text { Liabilities } & \text { FX Bought } & \text { FX Sold } \\ \text { British pound} &24,600 & 70,000 & 170,400 & 321,000 \\ \text { Yen} &31,000 & 20,400 & 250,000 & 220,000 \\ \text { Swiss franc} &10,200 & 9,800 & 8,000 & 10,800 \end{array}$ 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. 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.

The following are the net currency positions of a U.S.FI (stated in U.S.dollars). $\begin{array}{lrrrr} \text { Currency} &\text { Assets } & \text { Liabilities } & \text { FX Bought } & \text { FX Sold } \\ \text { British pound} &24,600 & 70,000 & 170,400 & 321,000 \\ \text { Yen} &31,000 & 20,400 & 250,000 & 220,000 \\ \text { Swiss franc} &10,200 & 9,800 & 8,000 & 10,800 \end{array}$ What is the FI's net exposure in British pounds?

A) -45,400. B) -150,600. C) -196,000. D) +105,200. A) -45,400. B) -150,600. C) -196,000. D) +105,200.

Exam 13: Foreign Exchange Risk

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. Currency Canaclian Dollay Euro Japane se Yen SWiss: Fiadc British Pound. Net Position +U.S. \ 1,200 -U.S. \ 245,900 +U.S. \ 505,000 -U.S. \ 36,700 +U.S. \4 47,900 What is the portfolio weight of the Japanese yen in this FI's portfolio of foreign currency?

(Multiple Choice)

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Question 61

On-balance-sheet hedging involves making changes in the on-balance-sheet assets and liabilities to protect FI profits from FX risk without the use of derivative securities.

(True/False)

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Question 62

A positive net exposure position in FX implies an FI has more foreign currency assets than foreign currency liabilities.

(True/False)

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Question 63

FX trading income is derived only from profit (or loss)on the FI's speculative currency positions.

(True/False)

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Question 64

The following are the net currency positions of a U.S.FI (stated in U.S.dollars). Currency Assets Liabilities FX Bought FX Sold British pound 24,600 70,000 170,400 321,000 Yen 31,000 20,400 250,000 220,000 Swiss franc 10,200 9,800 8,000 10,800 What is the FI's net exposure in the Japanese yen?

(Multiple Choice)

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Question 65

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. Currency Canaclian Dollay Euro Japane se Yen SWiss: Fiadc British Pound. Net Position +U.S. \ 1,200 -U.S. \ 245,900 +U.S. \ 505,000 -U.S. \ 36,700 +U.S. \4 47,900 What is the portfolio weight of the Euro in this FI's portfolio of foreign currency?

(Multiple Choice)

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Question 66

According to purchasing power parity (PPP),foreign currency exchange rates between two countries adjust to reflect changes in each country's

(Multiple Choice)

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Question 67

In which of the following FX trading activities does the FI not assume FX risk?

(Multiple Choice)

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Question 68

As the U.S.dollar appreciates against the Japanese yen,U.S.goods become less expensive to Japanese consumers.

(True/False)

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Question 69

An immediate exchange of currencies occurs in the spot foreign exchange market.

(True/False)

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Question 70

The following are the net currency positions of a U.S.FI (stated in U.S.dollars). Currency Assets Liabilities FX Bought FX Sold British pound 24,600 70,000 170,400 321,000 Yen 31,000 20,400 250,000 220,000 Swiss franc 10,200 9,800 8,000 10,800 How would you characterize the FI's risk exposure to fluctuations in the yen/dollar exchange rate?

(Multiple Choice)

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Question 71

An FI has purchased (borrowed)a one-year $10 million Eurodollar deposit at an annual interest rate of 6 percent.It has invested these proceeds in one-year Euro (€)bonds at an annual rate of 6.5 percent after converting them at the current spot rate of €1.75/$.Both interest and principal are paid at the end of the year. What is the spread earned by the bank at the end of the year if the exchange rate remains at €1.75/$?

(Multiple Choice)

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Question 72

Violation of the interest rate parity theorem would allow arbitrage profits.

(True/False)

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Question 73

Assets Liabilities \ 10 million U.S. loans(10 percent) \ 20 million U.S. CDs(9 percent) \ 10 million UK loans (16 percent) (loans made in sterling) A U.S.FI is raising all of its $20 million liabilities in dollars (one-year CDs)but investing 50 percent in U.S.dollar assets (one-year maturity loans)and 50 percent in UK pound sterling assets (one-year maturity loans).Suppose the promised one-year U.S.CD rate is 9 percent,to be paid in dollars at the end of the year,and that one-year,credit risk-free loans in the United States are yielding only 10 percent.Credit risk-free one-year loans are yielding 16 percent in the United Kingdom. If the exchange rate had fallen from $1.60/ $\le$ 1 at the beginning of the year to $1.50/ $\le$ 1 at the end of the year,the weighted return on the FI's asset portfolio would be

(Multiple Choice)

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Question 74

An FI has purchased (borrowed)a one-year $10 million Eurodollar deposit at an annual interest rate of 6 percent.It has invested these proceeds in one-year Euro (€)bonds at an annual rate of 6.5 percent after converting them at the current spot rate of €1.75/$.Both interest and principal are paid at the end of the year. Assume that instead of investing in Euro bonds at a fixed rate of 6.5 percent,the FI invests them in variable rates of LIBOR + 1.5 percent,reset every six months.The current LIBOR rate is 5 percent.Assume both interest and principal will be reinvested in six months.Assume the exchange rate remains at €1.75/$ at the end of the year.What should be the LIBOR rates in six months in order for the bank to earn a 1 percent spread?

(Multiple Choice)

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Question 75

The decline in European FX volatility during the last decade has been offset in part by

(Multiple Choice)

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Question 76

Interest rate parity implies that the discounted spread between interest rates in two currencies should equal the percentage spread between forward and spot exchange rates.

(True/False)

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Question 77

The following are the net currency positions of a U.S.FI (stated in U.S.dollars). Currency Assets Liabilities FX Bought FX Sold British pound 24,600 70,000 170,400 321,000 Yen 31,000 20,400 250,000 220,000 Swiss franc 10,200 9,800 8,000 10,800 What is the FI's net exposure in British pounds?

(Multiple Choice)

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Question 78

The market in which foreign currency is traded for future delivery is the forward foreign exchange market.

(True/False)

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Question 79

Yen Bank wishes to invest in Yen loans at a rate of 10 percent.The bank will fund the loans in the domestic CD market at a rate of 6.3 percent.This on-balance-sheet FX risk will be hedged in the spot market at a forward rate of $0.62/ $\times$ .The spot rate on yen is $0.60/ $\times$ . What must be the spot exchange rate to eliminate the preference for the yen loans if the forward rate remains $0.62/ $\times$ ?

(Multiple Choice)

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Question 80

On-balance-sheet hedging involves making changes in the on-balance-sheet assets and liabilities to protect FI profits from FX risk without the use of derivative securities.

A positive net exposure position in FX implies an FI has more foreign currency assets than foreign currency liabilities.

FX trading income is derived only from profit (or loss)on the FI's speculative currency positions.

The following are the net currency positions of a U.S.FI (stated in U.S.dollars). Currency Assets Liabilities FX Bought FX Sold British pound 24,600 70,000 170,400 321,000 Yen 31,000 20,400 250,000 220,000 Swiss franc 10,200 9,800 8,000 10,800 What is the FI's net exposure in the Japanese yen?

According to purchasing power parity (PPP),foreign currency exchange rates between two countries adjust to reflect changes in each country's

In which of the following FX trading activities does the FI not assume FX risk?

As the U.S.dollar appreciates against the Japanese yen,U.S.goods become less expensive to Japanese consumers.

An immediate exchange of currencies occurs in the spot foreign exchange market.

Violation of the interest rate parity theorem would allow arbitrage profits.

The decline in European FX volatility during the last decade has been offset in part by

Interest rate parity implies that the discounted spread between interest rates in two currencies should equal the percentage spread between forward and spot exchange rates.

The following are the net currency positions of a U.S.FI (stated in U.S.dollars). Currency Assets Liabilities FX Bought FX Sold British pound 24,600 70,000 170,400 321,000 Yen 31,000 20,400 250,000 220,000 Swiss franc 10,200 9,800 8,000 10,800 What is the FI's net exposure in British pounds?

The market in which foreign currency is traded for future delivery is the forward foreign exchange market.

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