Consider an MNC That Is Exposed to the Bulgarian Lev

question 63

Multiple Choice

Consider an MNC that is exposed to the Bulgarian lev (BGL) and the Romanian leu (ROL) . 30% of the MNC's funds are lev and 70% are leu. The standard deviation of exchange movements is 10% for lev and 15% for leu. The correlation coefficient between movements in the value of the lev and the leu is .85. Based on this information, the standard deviation of this two-currency portfolio is approximately:

• A) 17.28%.
• B) 13.15%.
• C) 14.50%.
• D) 12.04%.

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Definitions:

Horizontal Change

Alterations or movements that occur parallel to the x-axis in a coordinate system, often reflecting changes over time.

Opportunity Cost

The cost of the next best alternative foregone when a decision is made.

Production Possibility Frontier

A curve depicting the limit of attainable outputs for two or more products given a fixed set of resources, showing the trade-offs in production choices.

Output

The total amount of goods or services produced by a company, sector, or economy in a given period.