What best describes a currency mismatch on a firm's or sovereign's balance sheet?
Medium
Create a free account to see more questions and build your own quiz.
Get StartedWhat best describes a currency mismatch on a firm's or sovereign's balance sheet?
Options:
- Liabilities are predominantly denominated in foreign currency while assets or revenues remain mostly in domestic currency
- Assets and liabilities are matched in the same foreign currency
- All assets and liabilities are denominated in domestic currency only
- Assets are short-term while liabilities are long-term
Correct answer: Liabilities are predominantly denominated in foreign currency while assets or revenues remain mostly in domestic currency
Explanation: A currency mismatch occurs when foreign-currency liabilities exceed foreign-currency assets, exposing borrowers to depreciation risk; this vulnerability played a major role in the 1997–98 Asian financial crisis.
Created . Updated .