14-26 An FI can control its FX risk exposure by on-balance-sheet and off-balance-sheet hedging.

Question

Quizplus · Accepted Answer

A financial institution can use on-balance-sheet hedging by matching the currency composition of its assets and liabilities, using currency swaps or forward contracts. Off-balance-sheet hedging techniques include offering FX hedging instruments to its customers or using options, futures, or options on futures contracts. These types of hedging allow the FI to manage its exposure to FX risk.

14-26 an FI Can Control Its FX Risk Exposure by On-Balance-Sheet