Explanation:
An increase in GBP interest rates, assuming other factors remain constant and interest rate parity holds, would lead to a decrease in the forward rate of GBP/JPY. This is because higher interest rates in GBP would suggest that future value of the GBP is expected to be lower relative
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Q.2901 The management of Wiki Bank has signed a 2-year FX forward agreement with GSO traders to sell GBP against JPY at 150.95. All other factors remaining constant, which of the following situations will increase the bank’s maximum peak potential future exposure (PFE) towards GSO over the contract's life?
A
Increased JPY interest rates
B
Increased default probability by GSO over the time period
C
Increased GBP interest rates
D
A decrease in the volatility of GBP/JPY exchange rate.
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