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

Question

Quizplus · Accepted Answer

The FI is net short in the franc, which means that it has more liabilities in francs than assets in francs. If the franc rises in value against the U.S. dollar, the FI will have to pay more dollars to meet its franc liabilities, resulting in a loss.

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