What kind of exposure exists for foreign currency firm commitments?
A)fair value exposure
B)cash flow exposure
C)both fair value exposure and cash flow exposure
D)neither fair value exposure nor cash flow exposure

Question

Quizplus · Accepted Answer

Foreign currency firm commitments can result in both fair value exposure and cash flow exposure. Fair value exposure arises when the value of the firm commitment changes due to changes in the exchange rate. Cash flow exposure arises when the cash flows associated with the firm commitment are affected by changes in the exchange rate. Therefore, the correct answer is option C, as it encompasses both types of exposures.

What Kind of Exposure Exists for Foreign Currency Firm Commitments