What is foreign exchange risk? What does it mean for an FI to be net long in foreign assets? What does it mean for an FI to be net short in foreign assets? In each case, what must happen to the foreign exchange rate to cause the FI to suffer losses?
Answer to relevant QuestionsIf the Swiss franc is expected to depreciate in the near future, would a U. S. – based FI in Bern City, Switzerland, prefer to be net long or net short in its asset positions? Discuss.Discuss the interrelationships among the different sources of FI risk exposure. Why would the construction of an FI risk management model to measure and manage only one type of risk be incomplete?If a bank invested $ 50 million in a two-year asset paying 10 percent interest per year and simultaneously issued a $ 50 million one-year liability paying 8 percent interest per year, what would be the impact on the bank’s ...What are the primary considerations used by FIs to evaluate mortgage loans?Consider the coefficients of Altman’s Z-score. Can you tell by the size of the coefficients which ratio appears most important in assessing the creditworthiness of a loan applicant? Explain.
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