Which hedging strategy uses an exchange rate agreed to today for future delivery of currency to minimize the financial institution’s risk exposure? a. Hedging with forwards. b. On balance sheet hedging. c. Off balance sheet hedging. d. Spot hedging.
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Which hedging strategy uses an exchange rate agreed to today for future delivery of currency to minimize the financial institution’s risk exposure?
Hedging with forwards.
On balance sheet hedging.
Off balance sheet hedging.
Spot hedging.
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- The deterioration of economic conditions; deterioration of the value of the local currency in terms of the bank’s base currency; convertibility or transfer risks; market crisis are examples of what kinds of risk? Select one: a. Solvency risk b. Foreign exchange risk c. Sovereign risk d. Credit riskWhat type of banking risk includes deterioration of the value of the local currency in terms of the bank’s base currency; convertibility or transfer risks. a. Credit Risk b. Liquidity Risk c. Foreign Exchange Risk d. Interest Rate RiskIllustrate how to synthesize a forward hedging strategy by using only the money markets, in order to hedge against the foreign exchange risk.
- How can the company use currency options to hedge against exchange rate risk?Write Notes on the Following A: Off Balance Sheet Assets and Liabilities B: Interest Rate Risk Management C: Sterilized Intervention in Foreign Exchange D: Unsterilized Intervention in Foreign Exchange E: Balance of PaymentAnswer the following: a. Explain why the interest parity condition must hold if the foreign exchange market is in equilibrium. b. Explain why overshooting occurs. What can the Central Bank do to mitigate its effects?
- Explain the following: Liquidity management currency issue lender of last resort financial supervision Management of foreign currency reserves Determination of exchange rate policyA foreign currency loan is a typical example for O a. Currency Risk O b. Interest rate risk O c. Translation Exposure O d. Transaction ExposureTransaction exposure: A. measures the extent to which foreign exchange volatility may affect a firm's future ongoing revenues and costs. B. measures the effects of FX changes on the balance sheet of the firm. C. refers to the extent to which the value of the firm's cash flows may be affected by changes in the exchange rate. D. tries to measure the impact of unexpected exchange rate fluctuations on the net present value of the firm's future cash flows.
- D3) Finance Use covered interest rate parity (CIP) to show that a fixed exchange rate and free capital flows imply that a central bank cannot set the interest rate independently from the interest rate set by the reference currency's central bank.Foreign exchange risks a. Occur when cash flows are affected by currency exchange rates b. May be managed with forwards contracts c. May be managed with futures contracts d. Both a) and b) e. Both a) and c)Match macroprudential instruments with the types of measures. (you can also write down the matches in your answers, no need to fill in the blanks below!) Liquidity-Related Macroprudential Instruments/Types Limits on Net Open Currency Positions/Currency Mismatch Caps on Foreign Currency Lending Time-Varying/ Dynamic Provisioning Restrictions on Profit Credit-Related Capital-Related Distribution Caps on the LTV