09. Currency Risks Flashcards
1
Q
As currency risk exposure increases, bank needs …
A
to hold more capital.
2
Q
Credit + Liquidity + Currency risk
* Credit risk: …
* Liquidity risk: …
* International capital flows decrease (sudden stop)
* …
* All can happen at the same time: Twin crisis.
A
Return from loans decreases (low R due to a slow down in the economy).
Investors worry and withdraw (high α, low τ)
Currency depreciates.
