CASE STUDY FOREX
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Bank Financial Management — CAIIB.
One-liners from this chapter
Free sample — 8 of 66 rapid-fire Q&A cards.
A US exporter receives payment in EUR and converts to USD; if EUR depreciates after the contract date, who bears the forex risk?
The US exporter bears the forex risk, as the EUR proceeds convert to fewer USD than anticipated at the time of contracting.
What is 'transaction exposure' in forex risk management for a case study involving trade payables?
Risk of loss due to exchange rate change before settlement.
In a case study where an Indian importer has a USD payable due in 90 days, which hedging instrument locks in a fixed exchange rate today?
A forward exchange contract locks in a fixed rate for the 90-day USD payable, eliminating exchange rate uncertainty for the importer.
In a forex case study, what is 'translation exposure' faced by a multinational company?
Risk arising from converting foreign subsidiary financials to home currency.
When a bank quotes USD/INR as 83.20/83.25, what do the two rates represent?
83.20 is the bid rate at which the bank buys USD (customer sells), and 83.25 is the offer/ask rate at which the bank sells USD (customer buys); the spread is the bank's profit.
What is 'economic exposure' in a long-term forex case study for an exporting firm?
Impact of exchange rate changes on firm's competitive position and future cash flows.
An exporter approaches a bank to cancel a forward contract before maturity; as per FEDAI rules, what happens to the gain or loss?
Under FEDAI rules, the gain on cancellation is passed to the customer, but the loss is recovered from the customer; cancellation is done at the prevailing spot rate.
In a forex dealing room case study, what is the role of a 'market maker'?
A bank that continuously quotes both bid and offer rates for currencies.
Video classes for this chapter
More chapters in Module A - International Banking
Master the full BFM syllabus
Every chapter of Bank Financial Management — videos, tests, notes and one-liner decks in one place.