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hello this is David Harper a Bionic turtle and Im continuing a series on foreign currency exposure and foreign currency hedging using the same example as yesterday and yesterday we looked at the unhedged foreign currency exposure using this example of a bank based in the United States where the liabilities were 200 million denominated entirely in US dollars so these could be demand deposits or CDs but the idea is that the source of funds the interest bearing liabilities for the bank are denominated in this case entirely in US dollars where the expected cost or cost of funds is 8% and then we looked at this scenario here which is the unhedged foreign currency exposure due to the bank and what did we find we found that unhedged foreign currency exposure directly impacts returns and can cut both ways can increase the returns or can decrease the returns so unhedged foreign currency is a source of risk and under this scenario the bank taking the 200 million in sources of funds takes 50% an
