​If a US Firm Needs Dollars but Borrows a Foreign Currency Portfolio

question 40

Multiple Choice

​If a U.S. firm needs dollars but borrows a foreign currency portfolio, the uncertainty of the portfolio's effective financing rate will be highest if the correlations between currencies in the portfolio are ____ and the individual volatility of each currency is ____.

• A) ​high; low
• B) ​high; high
• C) ​low; low
• D) ​low; high

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Definitions:

Compromise

A method of resolving disagreements where each party gives up something that it wants in order to reach an agreement.

Unconsciously Believes

Refers to beliefs that individuals hold without being aware of them, which can influence thoughts, feelings, and behaviors beyond conscious awareness.

Irrational

Characterized by actions or thoughts that lack reason or sound judgment, often driven by emotions rather than logical reasoning.

Emotional Part

A component of human psychology that involves feelings, moods, and affective states.