A Bank Faces Foreign Exchange Risk When

question 112

Multiple Choice

A bank faces foreign exchange risk when:

• A) it has assets denominated in one currency and liabilities in another.
• B) it lends to foreign borrowers because they are less likely to repay a U.S. bank.
• C) foreign governments restrict dollar-denominated payments.
• D) it has branches in other countries.

---

Definitions:

Cash Flow

Cash flow refers to the net amount of cash being transferred in and out of a business, indicating its financial health.

Net Present Value

A method used in capital budgeting to assess the profitability of an investment, by discounting future cash flows to their present value and subtracting the initial investment cost.

Canadian Dollars

The official currency of Canada, denoted as CAD.

Mexican Pesos

The currency of Mexico, used in financial transactions within the country.