In Regards to the Perspective of a U

question 23

Multiple Choice

In regards to the perspective of a U.S. investor, which of the below statements is FALSE?

• A) The cash flows of assets denominated in a foreign currency expose the investor to uncertainty as to the actual level of the cash flow measured in U.S. dollars.
• B) The actual number of U.S. dollars that the investor eventually gets depends on the exchange rate between the U.S. dollar and the foreign currency at the time the nondollar cash flow is received and exchanged for U.S. dollars.
• C) If the foreign currency depreciates (declines in value) relative to the U.S. dollar (that is, the U.S. dollar appreciates), the dollar value of the cash flows will be proportionately less, leading to foreign exchange risk.
• D) The cash flows of assets denominated in a foreign currency expose the investor to uncertainty as to the actual level of the cash flow measured in that foreign currency.

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Definitions:

CFTC

The Commodity Futures Trading Commission, a United States federal agency regulating futures and options markets.

Futures Contract

A standardized legal agreement to buy or sell a particular commodity or financial instrument at a predetermined price at a specified time in the future.

Futures Contract

A standardized legal agreement to buy or sell something at a predetermined price at a specified future date.

Wilshire 5000

A metric assessing the performance of all equity securities based in the U.S. for which price information is easily accessible.