Which of the following statements is true?
A)The smaller the FI's net exposure in a foreign currency and the larger the foreign currency's exchange rate volatility, the larger is the potential dollar loss or gain to an FI's earnings.
B)The smaller the FI's net exposure in a foreign currency and the smaller the foreign currency's exchange rate volatility, the larger is the potential dollar loss or gain to an FI's earnings.
C)The larger the FI's net exposure in a foreign currency and the smaller the foreign currency's exchange rate volatility, the larger is the potential dollar loss or gain to an FI's earnings.
D)The larger the FI's net exposure in a foreign currency and the larger the foreign currency's exchange rate volatility, the larger is the potential dollar loss or gain to an FI's earnings.

Question

Quizplus · Accepted Answer

The larger the FI's net exposure in a foreign currency and the larger the foreign currency's exchange rate volatility, the larger is the potential dollar loss or gain to an FI's earnings. This is because a larger net exposure means a higher amount of foreign currency assets or liabilities that are affected by exchange rate movements, and larger exchange rate volatility means greater fluctuations in exchange rates, which can lead to larger gains or losses in dollar terms.

Which of the Following Statements Is True