22-120 What Type of Currency Hedge Is Necessary to Protect

question 35

Multiple Choice

22-120 What type of currency hedge is necessary to protect the FI from exchange rate risk?

• A)Buy € currency futures.
• B)Sell € currency futures.
• C)Finance the loan with € deposits.
• D)Finance the loan with Eurodollar deposits.
• E)Either B or D.

---

Definitions:

Social Cost

The total cost to society, including both private costs incurred by producers and external costs to other parties not involved in the transaction.

Private Value

The value of an asset or service as perceived by an individual or entity, not necessarily reflecting its market value.

Socially Optimal

A state of resource allocation where social welfare is maximized, balancing benefits and costs to society.

Private Value

Refers to the specific value that an individual or organization assigns to a good or service, based on personal assessment rather than market value.