When expecting a foreign currency to depreciate, a possible way to speculate on this movement is to borrow dollars, convert the proceeds to the foreign currency, lend in the foreign country, and use the proceeds from this investment to repay the dollar loan.

Question

Quizplus · Accepted Answer

This strategy actually describes a speculation on the appreciation of the foreign currency, not depreciation. By converting dollars to the foreign currency and investing in the foreign country, the investor is betting that the foreign currency will strengthen, allowing them to convert back to more dollars at the end of the investment period.

When Expecting a Foreign Currency to Depreciate, a Possible Way