Exchange Rate Fluctuations Contribute to the Risk of Foreign Investment

question 54

Multiple Choice

Exchange rate fluctuations contribute to the risk of foreign investment through three possible channels (i) the volatility of the investment due to the volatility of the exchange rate
(ii) the contribution of the cross-product term
(iii) its covariance with the local market returns
Which of the following contributes and accounts for most of the volatility?

• A)(i)and (ii)
• B)(ii)and (iii)
• C)(i)and (iii)
• D)only (ii)

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