Matching the foreign currency book does not protect the FI from:

Question

Quizplus · Accepted Answer

Matching the foreign currency book, which involves offsetting foreign currency assets with liabilities in the same currency, does not protect a financial institution from sovereign country risk. This risk pertains to the possibility that a foreign government may default on its obligations or enact policies that negatively affect the financial institution's investments in that country. Matching does help mitigate foreign exchange risk but not the risk associated with the actions of foreign governments.

Matching the Foreign Currency Book Does Not Protect the FI