Texas Bank is based in U.S.A. Texas Bank has given too many loans in Mexican pesos. These loans will mature two years from now. Texas Bank has very few liabilities in Mexican pesos.

What kind of risk is Texas Bank exposed to? Explain.

The manager of Texas Bank would like to do off-balance-sheet hedging to reduce the risk of the bank. What type of off-balance-sheet hedging should he seek? Explain.