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.What is Citibank's net exposure to currency risk?

Question

Quizplus · Accepted Answer

Net exposure to currency risk can be calculated by subtracting the euro purchases from the euro sales, which gives a net euro sale of 30 million. Since Citibank has more euro liabilities than euro assets, this net euro sale represents a reduction in the bank's euro exposure, so the correct answer is negative. Therefore, Citibank's net exposure to currency risk is -90 million euros.

Suppose Citibank Holds Assets Denominated in Euros of 120 Million