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Appreciation of the yen against the dollar

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X-IM Bank has ¥14 million in assets and ¥23 million in liabilities and has sold ¥8 million in foreign currency trading. What is the net exposure for X-IM? For what type of exchange rate movement does this exposure put the bank at risk?

The net exposure would be ¥14 million - ¥23 million - ¥8 million = -¥17 million. This negative exposure puts the bank at risk of an appreciation of the yen against the dollar. A stronger yen means that repayment of the net position would require more dollars

As the answer mentioned that the risk of an appreciation of the yen against the dollar. Why?

Reference no: EM131710557

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