Assume an Australian FI has US$100 000 in assets and US$200 000 in liabilities. Further, the FI has bought US$40 000 and sold US$20 000. What is the net exposure of the Australian FI?
A) -US$20 000
B) -US$80 000
C) US$20 000
D) US$80 000

Question

Quizplus · Accepted Answer

The net exposure of a financial institution is calculated as the difference between its assets and liabilities. In this case, the Australian FI has assets of US$100,000 and liabilities of US$200,000, resulting in a net exposure of -US$100,000.

However, since the FI has bought US$40,000 and sold US$20,000, these transactions need to be factored in to determine the new net exposure. The net effect of these transactions is to increase the FI's long position by US$20,000 (US$40,000 bought minus US$20,000 sold).

Therefore, the new net exposure is -US$80,000 (original net exposure of -US$100,000 plus US$20,000 from the transactions). Thus, the correct answer is option B, -US$80,000.

Assume an Australian FI Has US$100 000 in Assets and US$200