24-68 A US bank has fixed-rate assets in US dollars and variable-rate liabilities in Euros.This bank is exposed to
A)interest rate increases and an appreciation of the dollar.
B)interest rate declines and an appreciation of the dollar.
C)interest rate increases and a depreciation of the dollar.
D)interest rate declines and a depreciation of the dollar.
E)zero exposure to interest rate and exchange rate exposures.

Question

Quizplus · Accepted Answer

The bank is exposed to interest rate increases as their fixed-rate assets will become less valuable in a rising rate environment. Additionally, they have variable-rate liabilities in Euros, which means they would be negatively impacted by a depreciation of the dollar. Therefore, if there is an interest rate increase and a depreciation of the dollar, the bank would be exposed to both interest rate and exchange rate risks.

24-68 a US Bank Has Fixed-Rate Assets in US Dollars