Foreign Exchange: On balance sheet hedge

Yesterday I reviews Saunders' un-hedged bank: $200 million in U.S. dollar deposits fund investments which are split (50%/50%) between US dollar assets and British assets. We saw that un-hedged foreign currency exposure directly impacts returns in either direction (i.e., a material risk factor). In on-balance sheet hedging, the bank instead funds with $100 million in British Pound Sterling: the asset and liabilities are matched in regard to their foreign currency exposure (please note: this does not immunizes; asset/liability durations may different such that interest rate exposure remains).

Category:

Education

Tags:

• Finance
• risk
• foreign
• currency
• exchange
• fx

[tradingheroes]

Just seems like there should be an easier way to explain this.

[bionicturtledotcom]

@tradingheroes I'm sure there is

[naixieweix]

thanks! was doing my assignment and really needed help, and i found this video!

thanks again, bionic turtle!

[TheOverlord23]

great video! gives additional insights thanks : )

[balistik001]

idiot