Answer: lower than the impact of an unfavorable change in the EUR exchange rate.

## Explanation To determine the potential negative impact of unfavorable exchange rate changes, we need to analyze the **Cash Flow at Risk** figures provided in the sensitivity analysis. ### Key Data: - **USD Exposure**: 7,304 million GBP - **USD Cash Flow at Risk**: 198 million GBP - **EUR Exposure**: 7,198 million GBP - **EUR Cash Flow at Risk**: 304 million GBP ### Analysis: 1. **Cash Flow at Risk** represents the potential negative impact on cash flows from unfavorable exchange rate movements. 2. **Comparison**: - USD: **198 million GBP** cash flow at risk - EUR: **304 million GBP** cash flow at risk 3. **Conclusion**: The potential negative impact of an unfavorable change in the USD exchange rate (198 million GBP) is **lower** than the impact of an unfavorable change in the EUR exchange rate (304 million GBP). ### Additional Insight: - Although the total exposure for USD (7,304 million) is slightly higher than for EUR (7,198 million), the cash flow at risk for USD is significantly lower, suggesting: - The company may have better hedging strategies for USD exposure - USD operations may be less sensitive to exchange rate fluctuations - The nature of USD-denominated cash flows may be more stable Therefore, the correct answer is **A** - the potential negative impact of an unfavorable change in the USD exchange rate is lower than the impact of an unfavorable change in the EUR exchange rate.

Author: LeetQuiz Editorial Team