Foreign Exchange Risk (FRM Part 1 2023 - Book 3 - Chapter 19)

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After completing this reading, you should be able to:
- Calculate a financial institution’s overall foreign exchange exposure.
- Explain how a financial institution could alter its net position exposure to reduce foreign exchange risk.
- Calculate a financial institution’s potential dollar gain or loss exposure to a particular currency.
- Identify and describe the different types of foreign exchange trading activities.
- Identify the sources of foreign exchange trading gains and losses.
- Calculate the potential gain or loss from a foreign currency denominated investment.
- Explain balance-sheet hedging with forwards.
- Describe how a non-arbitrage assumption in the foreign exchange markets leads to the interest rate parity theorem, and use this theorem to calculate forward foreign exchange rates.
- Explain why diversification in multicurrency asset-liability positions could reduce portfolio risk.
- Describe the relationship between nominal and real interest rates.

[@linaelmoutaki5610]

thank you very much

[@abdullahnarejo1259]

sir what do you mean by matching its assets to liabilities. please explain? is not there will be a difference in their exchange rate and on their liablities,

[@abdullahnarejo1259]

sir, how it is easier for them to sell their merchandise in domestic purchase. wont they have a profit in FX market, because they are able to sell at a higher rate, meaning more dollar's inflows?