Response to the following questions:
1. If an FI has the same amount of foreign assets and foreign liabilities in the same currency, has that FI necessarily reduced the risk involved in these international transactions to zero? Explain.
2. A U.S. insurance company invests $1,000,000 in a private placement of British bonds. Each bond pays £300 in interest per year for 20 years. If the current exchange rate is £1.5612 for U.S.$1, what is the nature of the insurance company's exchange rate risk? Specifically, what type of exchange rate movement concerns this insurance company?