14-28 On-balance-sheet hedging involves making changes in the on-balance-sheet assets and liabilities to protect FI profits from FX risk without the use of derivative securities.

Question

Quizplus · Accepted Answer

On-balance-sheet hedging involves modifying the FI's assets and liabilities to mitigate FX risk without using derivatives. This can include changing the mix of currencies in the FI's portfolio or adjusting the maturities of its liabilities to match those of its assets. As a result, the gains and losses from FX movements are offset by changes in the value of the FI's assets and liabilities, protecting the FI's profits.

14-28 On-Balance-Sheet Hedging Involves Making Changes in the On-Balance-Sheet Assets