The following are the net currency positions of a U.S.FI (stated in U.S.dollars). $$\begin{array} { | l | l | r | r | r | }
\hline \text { Currency } & \text { Assets } & \text { Liabilities } & \text { FX Bought } & \text { FX Sold } \
\hline \text { British pound } & 24,600 & 70,000 & 170,400 & 321,000 \
\hline \text { Yen } & 31,000 & 20,400 & 250,000 & 220,000 \
\hline \text { Swiss franc } & 10,200 & 9,800 & 8,000 & 10,800 \
\hline
\end{array}$$ How would you characterize the FI's risk exposure to fluctuations in the British pound to dollar exchange rate?
A)The FI is net short in the British pound and therefore faces the risk that the British pound will rise in value against the U.S.dollar.
B)The FI is net short in the British pound and therefore faces the risk that the British pound will fall in value against the U.S.dollar.
C)The FI is net long in the British pound and therefore faces the risk that the British pound will fall in value against the U.S.dollar.
D)The FI is net long in the British pound and therefore faces the risk that the British pound will rise in value against the U.S.dollar.
E)The FI has a balanced position in the British pound.

Question

The following are the net currency positions of a U.S.FI (stated in U.S.dollars). $$\begin{array} { | l | l | r | r | r | } 
\hline \text { Currency } & \text { Assets } & \text { Liabilities } & \text { FX Bought } & \text { FX Sold } \
\hline \text { British pound } & 24,600 & 70,000 & 170,400 & 321,000 \
\hline \text { Yen } & 31,000 & 20,400 & 250,000 & 220,000 \
\hline \text { Swiss franc } & 10,200 & 9,800 & 8,000 & 10,800 \
\hline
\end{array}$$ How would you characterize the FI's risk exposure to fluctuations in the British pound to dollar exchange rate?
A)The FI is net short in the British pound and therefore faces the risk that the British pound will rise in value against the U.S.dollar.
B)The FI is net short in the British pound and therefore faces the risk that the British pound will fall in value against the U.S.dollar.
C)The FI is net long in the British pound and therefore faces the risk that the British pound will fall in value against the U.S.dollar.
D)The FI is net long in the British pound and therefore faces the risk that the British pound will rise in value against the U.S.dollar.
E)The FI has a balanced position in the British pound.

Quizplus · Accepted Answer

To determine the FI's net position in the British pound, we calculate the net position by considering assets, liabilities, FX bought, and FX sold. The net position is: Assets + FX Bought - Liabilities - FX Sold = 24,600 + 170,400 - 70,000 - 321,000 = -196,000. A negative value indicates a net short position in the British pound, meaning the FI would be adversely affected if the British pound appreciates against the U.S. dollar.

The Following Are the Net Currency Positions of a U