Foreign Exchange: Off balance sheet hedge
Using the example of a US bank funded with dollar denominated liabilities, that invests abroad by making pound sterling loans, I previously reviewed: 1. Un-hedged foreign currency exposure: if pound sterling depreciates vis-a-vis dollar, bank’s returns are eroded by foreign currency and 2. On-balance sheet hedge: bank instead matches by funding partially with pound sterling liabilities, so if foreign currency depreciates, the net return on the loan asset remains reduced but the cost of funding is similarly reduced. 3. Here is the off-balance sheet scenario: the bank sells the pound sterlings forward
Related posts:
- What is Meant by Forex or Foreign Exchange? Most countries have their own national currency such as...
- Foreign Exchange Markets – a General Overview and Structure of the Forex Market In the beginning countries would trade with each other using...
- Foreign Exchange Made Easy for Everyone & lt; p& gt; Foreign Exchange have been made easy...
- Spanish Property & Foreign Exchange Rate report for 2008 & 2009 Susana Suspenda the legendry marketing and exchange...
- Foreign Exchange Basics This article on foreign exchange basics will look at the...
Related posts brought to you by Yet Another Related Posts Plugin.
