A US bank has fixed-rate assets in US dollars and variable-rate liabilities in Euros.This bank is exposed to
A)interest rate increases and an appreciation of the dollar.
B)interest rate declines and an appreciation of the dollar.
C)interest rate increases and a depreciation of the dollar.
D)interest rate declines and a depreciation of the dollar.
E)zero exposure to interest rate and exchange rate exposures.

Question

Quizplus · Accepted Answer

Interest rate increases will increase the value of the bank's fixed-rate assets, while a depreciation of the dollar will increase the value of the bank's variable-rate liabilities in Euros. This will result in a net gain for the bank.

A US Bank Has Fixed-Rate Assets in US Dollars and Variable-Rate