Saunders, Financial Institutions Management, Chapter 13 contains 42 pages covering the following learning objectives:

* Calculate a financial institution’s overall foreign exchange exposure.
* Explain how a financial institution could alter its net position exposure to reduce foreign exchange risk.
* Calculate and explain the effect of an appreciation/depreciation of a currency relative to a foreign currency.
* Calculate a financial institution’s potential dollar gain or loss exposure to a particular currency.
* Identify and describe the different types of foreign exchange trading activities.
* Identify the sources of foreign exchange trading gains and losses.
* Calculate the potential gain or loss from a foreign currency denominated investment.
* Explain balance‐sheet hedging with forwards.
* Describe how a nonarbitrage assumption in the foreign exchange markets leads to the interest rate parity theorem; use this theorem to calculate forward foreign exchange rates.
* Explain the purchasing power parity theorem and use this theorem to calculate the appreciation or depreciation of a foreign currency.
* Explain why diversification in multicurrency asset‐liability positions could reduce portfolio risk.
* Describe the relationship between nominal and real interest rates.

After reviewing the notes you will be able to apply what you learned with practice questions. We have also included the Hull Chapter 3 End of Chapter Q&A for your review, as they are relevant to this reading.

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