An Australian FI that holds a net short asset position in $US is exposed to foreign exchange rate risk if the $US appreciates against the $A over the investment period.

Question

Quizplus · Accepted Answer

When an Australian financial institution holds a net short position in $US, it means that it owes more $US than it holds. If the $US appreciates against the $A over the investment period, the FI will have to pay back more $A to settle its $US obligation, resulting in foreign exchange rate risk.

An Australian FI That Holds a Net Short Asset Position