Question 1

A negative net exposure position in FX implies that the FI is

Accepted Answer

A) net long in a currency and exposed to depreciation of the foreign currency. 
B) net short in a currency and exposed to depreciation of the foreign currency. 
C) net long in a currency and exposed to appreciation of the foreign currency. 
D) net short in a currency and exposed to appreciation of the foreign currency. 
A) net long in a currency and exposed to depreciation of the foreign currency. 
B) net short in a currency and exposed to depreciation of the foreign currency. 
C) net long in a currency and exposed to appreciation of the foreign currency. 
D) net short in a currency and exposed to appreciation of the foreign currency.

Question 2

Which of the following is an example of interest rate parity?

Accepted Answer

A) The Japanese yen trades at the same exchange rate as the Swiss franc. 
B) U.S.dollar rates on one year U.S.Treasury securities equal 1 year Japanese government bond rates. 
C) U.S.dollar rates on one year U.S.Treasury securities equal 1 year Japanese government bond rates,restated in dollars. 
D) British pound 2 year forward rates equal 2 year Swiss franc forward rates. 
A) The Japanese yen trades at the same exchange rate as the Swiss franc. 
B) U.S.dollar rates on one year U.S.Treasury securities equal 1 year Japanese government bond rates. 
C) U.S.dollar rates on one year U.S.Treasury securities equal 1 year Japanese government bond rates,restated in dollars. 
D) British pound 2 year forward rates equal 2 year Swiss franc forward rates.

Question 3

Purchasing power parity is based on the difference in productive output (GDP)that exists between two countries.

Accepted Answer

A) True 
 B)False

Question 4

Historically,to exchange Swiss francs into Chinese yuan,a trader had to first exchange the francs into U.S.dollars.

Accepted Answer

A) True 
 B)False

Question 5

$\begin{array}{lrr}
\text { Assets } &\text {Liabilities} \
&  \text { \$ 10 million U.S. loans(10 percent) } & \text { \$ 20  million U.S. CDs(9 percent) }  \
 &\text { \$ 10 million UK loans (16 percent) } &\
 &\text { (loans made in sterling)} &\
\end{array}$
 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 spot foreign exchange rate remains constant at $1.60 to $\le$1 throughout the year,the return from the UK investment will be

Accepted Answer

A) 15%. 
B) 12%. 
C) 16%. 
D) 13%. 
A) 15%. 
B) 12%. 
C) 16%. 
D) 13%.

Question 6

As of 2015,which of the following FX "markets" is the largest?

Accepted Answer

A) London. 
B) New York. 
C) Tokyo. 
D) Hong Kong. 
A) London. 
B) New York. 
C) Tokyo. 
D) Hong Kong.

Question 7

To a U.S.trader of foreign currencies,a direct quote indicates U.S.dollars received for each one unit of the foreign currency.

Accepted Answer

A) True 
 B)False

Question 8

$\begin{array}{lrr}
\text { Assets } &\text {Liabilities} \
&  \text { \$ 10 million U.S. loans(10 percent) } & \text { \$ 20  million U.S. CDs(9 percent) }  \
 &\text { \$ 10 million UK loans (16 percent) } &\
 &\text { (loans made in sterling)} &\
\end{array}$
 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.

The weighted return on the bank's portfolio of investments would be

Accepted Answer

A) 15%. 
B) 12%. 
C) 16%. 
D) 13%. 
A) 15%. 
B) 12%. 
C) 16%. 
D) 13%.

Question 9

The reasons nondepository FIs have less FX risk than major money center banks include

Accepted Answer

A) Smaller asset sizes. 
B) Prudent person concerns. 
C) Regulations. 
D) All of the options. 
A) Smaller asset sizes. 
B) Prudent person concerns. 
C) Regulations. 
D) All of the options.

A negative net exposure position in FX implies that the FI is

Which of the following is an example of interest rate parity?

Purchasing power parity is based on the difference in productive output (GDP)that exists between two countries.

Historically,to exchange Swiss francs into Chinese yuan,a trader had to first exchange the francs into U.S.dollars.

As of 2015,which of the following FX "markets" is the largest?

To a U.S.trader of foreign currencies,a direct quote indicates U.S.dollars received for each one unit of the foreign currency.

The reasons nondepository FIs have less FX risk than major money center banks include

Why Are Financial Institutions Special

Financial Services: Depository Institutions

Financial Services: Finance Companies

Financial Services: Securities Firms and Investment Banks

Financial Services: Mutual Fund and Hedge Fund Companies

Financial Services: Insurance Companies

Risks of Financial Institutions

Interest Rate Risk I

Interest Rate Risk II

Credit Risk: Individual Loan Risk

Credit Risk: Loan Portfolio and Concentration Risk

Liquidity Risk

Sovereign Risk

Market Risk

Off-Balance-Sheet Risk

Technology and Other Operational Risks

Liability and Liquidity Management

Deposit Insurance and Other Liability Guarantees

Capital Adequacy

Product and Geographic Expansion

Futures and Forwards

Options, Caps, Floors, and Collars

Swaps

Loan Sales

Securitization

Filters

Exam 13: Foreign Exchange Risk

A negative net exposure position in FX implies that the FI is

Which of the following is an example of interest rate parity?

Purchasing power parity is based on the difference in productive output (GDP)that exists between two countries.

Historically,to exchange Swiss francs into Chinese yuan,a trader had to first exchange the francs into U.S.dollars.

As of 2015,which of the following FX "markets" is the largest?

To a U.S.trader of foreign currencies,a direct quote indicates U.S.dollars received for each one unit of the foreign currency.

The reasons nondepository FIs have less FX risk than major money center banks include

Why Are Financial Institutions Special

Financial Services: Depository Institutions

Financial Services: Finance Companies

Financial Services: Securities Firms and Investment Banks

Financial Services: Mutual Fund and Hedge Fund Companies

Financial Services: Insurance Companies

Risks of Financial Institutions

Interest Rate Risk I

Interest Rate Risk II

Credit Risk: Individual Loan Risk

Credit Risk: Loan Portfolio and Concentration Risk

Liquidity Risk

Sovereign Risk

Market Risk

Off-Balance-Sheet Risk

Technology and Other Operational Risks

Liability and Liquidity Management

Deposit Insurance and Other Liability Guarantees

Capital Adequacy

Product and Geographic Expansion

Futures and Forwards

Options, Caps, Floors, and Collars

Swaps

Loan Sales

Securitization

Filters