The FI is acting as a hedger when it
A)buys or sells currency to balance the FI's net exposure.
B)takes a nonzero net position in a particular currency.
C)processes an exporter's transaction in a foreign currency.
D)makes a market in a currency.
E)advises customers on their international business.

Question

Quizplus · Accepted Answer

When an FI buys or sells currency to balance its net exposure, it is acting as a hedger. Hedging involves taking a position in the market that offsets or reduces the risk of another position or exposure. In this case, the FI is seeking to offset the risk associated with its net exposure to a particular currency by taking a position in the opposite direction. This reduces the FI's overall exposure to currency risk and helps to protect its financial position.

The FI Is Acting as a Hedger When It