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Answer: Purchase sovereign credit default swaps (CDS)
Matching assets and liabilities in the same currency and matching purchases and sales in the same currency both reduce net FX exposure. Aggregating exposures across businesses can also allow natural hedging. Purchasing sovereign CDS is a credit-risk hedge, not a direct hedge of foreign exchange exposure. Therefore, it is **least likely** to minimize FX exposure.
Author: Manit Arora
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Question 192.2. According to Saunders, which of the following is LEAST likely to minimize a bank’s foreign exchange exposure?
A
Match assets and liabilities in a given currency
B
Match purchases and sales in a given currency
C
Purchase sovereign credit default swaps (CDS)
D
Aggregate foreign exchange exposures across businesses in a holding company
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