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

question 3

Multiple Choice

How would you characterize the FI's risk exposure to fluctuations in the Swiss franc/dollar exchange rate?

• A)The FI is net short in the franc and therefore faces the risk that the franc will rise in value against the U.S.dollar.
• B)The FI is net short in the franc and therefore faces the risk that the franc will fall in value against the U.S.dollar.
• C)The FI is net long in the franc and therefore faces the risk that the franc will fall in value against the U.S.dollar.
• D)The FI is net long in the franc and therefore faces the risk that the franc will rise in value against the U.S.dollar.
• E)The FI has a balanced position in the Swiss franc.

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Definitions:

Price Leadership

An informal method that firms in an oligopoly may employ to set the price of their product: One firm (the leader) is the first to announce a change in price, and the other firms (the followers) soon announce identical or similar changes.

Kinked Demand

A market scenario where a firm's demand curve is more elastic for price increases than for price decreases due to competitive reactions.

Monopolistic Competition

A market structure in which many firms sell products that are similar but not identical, allowing for some degree of market power.

Oligopoly

A market structure characterized by a small number of firms that have significant control over market prices and competition levels.