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    Question

     Foreign Exchange transactions which may expose bank to transaction exposure are

    A.    Purchase or Sale of goods in foreign currency

    B.    Loan repayments to be made in Foreign Currency

    C.   Dividends paid or received in Foreign Currency

    A Only A Correct Answer Incorrect Answer
    B A and B Correct Answer Incorrect Answer
    C B and C Correct Answer Incorrect Answer
    D A and C Correct Answer Incorrect Answer
    E All of the above Correct Answer Incorrect Answer

    Solution

    Foreign Exchange exposure can be broadly classified into three categories depending upon the nature of exposure. They are 1) Transaction exposure 2) Translation exposure and 3) Operating exposure.  Foreign Exchange transactions which may expose bank to transaction exposure are A) Purchase or Sale of goods in foreign currency B) Loan repayments to be made in Foreign Currency C) Dividends paid or received in Foreign Currency.  Translation exposure becomes a transaction exposure at some point of time when the Foreign Exchange is extinguished through sale and purchase of foreign currency.

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