In CFAI Sample 2 Exam, there is an item set where the first sentence says “the firm trades only domestic equity and fixed income securities.” One of the questions was what kind of risk is this firm not exposed to: a) settlement risk b) credit risk c) interest rate risk d) exchange rate risk Stupid idiot here picked d) exchange rate risk because one of the facts said that they sold some European-style options. So it was really a combination of two ridiculously stupid mistakes – 1) forgetting the first sentence and 2) misinterpreting the concept of “European” option in my CFA-overload induced haze. Enjoy.
??? D was correct.
Ummm, they aren’t exposed to D so you would be right… based on what you said above. They only invest in DOMESTIC equitites and FI.
Well I didn’t take it, but Fixed income products would expose you to b and c, settlement risk is a factor, so d would be wrong if transactions are in one one currency.
Everyone’s right, I picked a) settlement risk, not d) which was the right answer. So let’s summarize the stupid mistakes again: 1) forgetting the first sentence in my CFA-overload induced haze 2) misinterpreting the concept of “European” option in my CFA-overload induced haze 3) saying that I picked d) instead of a) in my CFA-overload induced haze
they got me too. don’t feel bad. or maybe you should.
They may have exchange risk too maybe… I mean if you think more maybe the domestic companies export to Europe. There is an indirect effect of xchange rates. How’s that?
yeah it was a clear d