14-66 How would you characterize the FI's risk exposure to fluctuations in the Euro to dollar exchange rate?
A)The FI is net short in the Euro and therefore faces the risk that the Euro will rise in value against the U.S.dollar.
B)The FI is net short in the Euro and therefore faces the risk that the Euro will fall in value against the U.S.dollar.
C)The FI is net long in the Euro and therefore faces the risk that the Euro will fall in value against the U.S.dollar.
D)The FI is net long in the Euro and therefore faces the risk that the Euro will rise in value against the U.S.dollar.
E)The FI has a balanced position in the Euro.

Question

Quizplus · Accepted Answer

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

14-66 How Would You Characterize the FI's Risk Exposure to Fluctuations