Assume That There Are Several Foreign Currencies That Exhibit a Higher

question 11

Multiple Choice

Assume that there are several foreign currencies that exhibit a higher interest rate than the U.S. interest rate. The U.S. firm has a higher probability of generating a higher effective yield on a portfolio of currencies (relative to the domestic yield) if:​

• A)the foreign currency movements against the U.S. dollar are highly correlated.
• B)the foreign currency movements against the U.S. dollar are perfectly positively correlated.
• C)the foreign currency movements against the U.S. dollar exhibit low correlations.
• D)none of the answers above would have any impact on the probability of a foreign cash investment generating a higher effective yield than a U.S. investment.

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