Question

How can entities with unhedged foreign currency exposures affect the health of the banking system?

a.

By increasing the profitability of banks

b.

By reducing the capacity to service loans taken from the banking system

c.

By promoting financial stability

d.

By minimizing exchange rate risks

Answer: (b).By reducing the capacity to service loans taken from the banking system Explanation:Entities with unhedged foreign currency exposures can affect the health of the banking system by reducing their capacity to service loans taken from the banking system.

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Q. How can entities with unhedged foreign currency exposures affect the health of the banking system?

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