Foreign Exchange Risk and International Exposure
1. Discuss the foreign exchange risk exposure of your chosen bank. Which countries? What types of on balance sheet assets contain foreign exposure (show total dollar amounts and percentage of the total assets)? What is the percentage of total assets for each country or region? What types of off balance sheet items have a foreign exposure (dollar amounts and percentage of the total)? Is your bank globally diversified?
2. Given the exposure that you have described above, does your FI have a regulatory risk related to their operations? For example, if your bank operates in the U.S., Europe, South America or Asia, has the bank identified risks of changing regulations or currencies that could put their operations at risk? Describe the impact on your bank.
3. How does a change in the value of the Canadian dollar affect your bank’s income? Its balance sheet?
Part 3: Comparison with A Canadian Life Insurance Company (approximately 2 pages)
Canadian life insurance companies also have extensive international exposure. Compare the international exposure (U.S. and other countries) of your bank with either Manulife Financial or Sun Life Financial. How do the foreign exchange risks and the foreign exposure differ between your bank and the life insurance company?
Part 4: Conclusion: Your bank as a Global FI (approximately 1 page)
Chapter 5 of the PWC 2013 report states that Canadian banks are ‘considered to be some of the safest banks globally’ (PWC 2013, page 26) as does the CBA Report (CBA 2013, page 1). Explain why (or why not) the bank that you have studied is ‘safe’. Summarize your analysis and your view of this bank’s place as a Canadian and global financial intermediary.