How would you characterize the FI's risk exposure to fluctuations in the yen/dollar exchange rate?
A)The FI is net short in the yen and therefore faces the risk that the yen will rise in value against the U.S.dollar.
B)The FI is net short in the yen and therefore faces the risk that the yen will fall in value against the U.S.dollar.
C)The FI is net long in the yen and therefore faces the risk that the yen will fall in value against the U.S.dollar.
D)The FI is net long in the yen and therefore faces the risk that the yen will rise in value against the U.S.dollar.
E)The FI has a balanced position in the Japanese yen.

Question

Quizplus · Accepted Answer

If the FI is net long in the yen, it means they hold more yen assets than liabilities. Therefore, they face the risk that the yen will depreciate against the U.S. dollar, reducing the value of their yen-denominated assets.

How Would You Characterize the FI's Risk Exposure to Fluctuations