Suppose Citibank holds assets denominated in euros of 120 million and liabilities denominated in euros of 180 million.They also have euro purchases of 40 million and euro sales of 70 million.When would Citibank experience a loss in the currency market?

Question

Quizplus · Accepted Answer

If the euro increases in value relative to the dollar, it would cause Citibank's euro-denominated assets and purchases to be worth less in dollar terms, while their euro-denominated liabilities and sales would be worth more in dollar terms. This would result in a loss for Citibank in the currency market.

Suppose Citibank Holds Assets Denominated in Euros of 120 Million