The Following Are the Net Currency Positions of a U

question 47

Multiple Choice

The following are the net currency positions of a U.S.FI (stated in U.S.dollars) . Note: Net currency positions are foreign exchange bought minus foreign exchange sold restated in U.S.dollar terms. $$\begin{array} { | l | r | } \hline { \text { Currency } } & \text { Net Position } \\\hline \text { Canadian Dollar } & \text { +US } \$ 1,200 \\\hline \text { Euro } & \text {-US } \$ 245,900 \\\hline \text { Japanese Yen } & + \mathrm { US } \$ 505,000 \\\hline \text { Swiss Frane } & \text {-US } \$ 36,700 \\\hline \text { British Pound } & \text { +US } \$ 447,900 \\\hline\end{array}$$ 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.

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Definitions:

Financing Activities

Transactions related to raising capital and repaying investors, including issuing debt, selling stock, or paying dividends.

Cash Dividends

Payments made by a corporation to its shareholder members from its earnings or reserves.

Net Cash

The amount of cash a company has on hand after all debts and liabilities have been paid.

Investing Activities

Financial actions related to the acquisition and disposal of long-term assets and other investments not considered as cash equivalents.