Consider a U. S. commercial bank that takes in one-year certificates of deposit(CDs) in its Japan branch, denominated in Japanese yen, to fund three-year, fixed-rate loans the bank is making in the U. S. denominated in U. S. dollars. Why would this bank wish to enter into a currency swap The bank faces the risk that the Japanese yen: ()
A. increases in value against the U. S. dollar and the risk that interest rates decrease in Japan.
B. decreases in value against the U. S. dollar and the risk that interest rates increase in Japan.
C. increases in value against the U. S. dollar and the risk that interest rates increase in Japan.
参考答案：C
解析：
The bank faces two problems. First, if the Japanese yen increases in value, it will take more U.S. dollars to repay the Japan depositors. Indeed, if the Japanese yen increases significantly, it may take more U. S. dollars to repay the Japan depositors than the bank makes on the U. S. loan. Secondly, if the interest rate in Japan rises, the bank pays more in interest on its CDs while the rate on the bank’s U. S. loans does not change. In this ease, interest expense would rise and interest income would remain the same, which narrows the bank’s profits.