​Consider an MNC That Is Exposed to the Taiwan Dollar

question 14

Multiple Choice

​Consider an MNC that is exposed to the Taiwan dollar (TWD) and the Egyptian pound (EGP) ; 25 percent of the MNC's funds are Taiwan dollars and 75 percent are pounds. The standard deviation of exchange movements is 7 percent for Taiwan dollars and 5 percent for pounds. The correlation coefficient between movements in the value of the Taiwan dollar and the pound is .7. Based on this information, the standard deviation of this two-currency portfolio is approximately:

• A) ​5.13 percent.
• B) ​2.63 percent.
• C) ​4.33 percent.
• D) ​5.55 percent.

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Definitions:

Nonpolar Covalent

Nonpolar Covalent bonds are chemical bonds where two atoms share a pair of electrons equally, resulting in molecules that have no overall dipole moment.

Polar Covalent

A type of chemical bond where electrons are unequally shared between atoms, leading to a distribution of charge.

Proton Acceptor

A substance that receives hydrogen ions in a chemical reaction.

Proton Donor

A substance that can release (donate) a proton (H+ ion) in a chemical reaction, typically an acid in a chemical context.