If a Firm Repeatedly Borrows a Foreign Currency Portfolio, the Variability

question 4

Multiple Choice

If a firm repeatedly borrows a foreign currency portfolio, the variability of the portfolio's effective financing rate will be highest if the correlations between currencies in the portfolio are ____ and the individual variability of each currency is ____.

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

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Definitions:

Cross-Price Elasticity

Cross-Price Elasticity measures how the demand for one good responds to changes in the price of another good, indicating substitute or complementary relationships.

Tea

A beverage made by steeping processed leaves, buds, or twigs of the tea plant in hot water.

Coffee

A beverage made from roasted and ground coffee beans, which are the seeds of berries from certain Coffea species, known for its stimulating effect due to caffeine content.

Price Elastic

Descriptive of a product's demand sensitivity to changes in its price; high elasticity indicates demand significantly varies with price.