A firm without any exposure to foreign exchange rates would likely increase this exposure the most by:
A) borrowing domestically.
B) borrowing a portfolio of foreign currencies that are not highly correlated.
C) borrowing a portfolio of foreign currencies that are highly correlated.
D) borrowing two foreign currencies that are negatively correlated.

Question

​A firm without any exposure to foreign exchange rates would likely increase this exposure the most by:
A) ​borrowing domestically.
B) ​borrowing a portfolio of foreign currencies that are not highly correlated.
C) ​borrowing a portfolio of foreign currencies that are highly correlated.
D) ​borrowing two foreign currencies that are negatively correlated.

Quizplus · Accepted Answer

Borrowing a portfolio of foreign currencies that are highly correlated would increase the firm's exposure to foreign exchange rates the most because it would increase the firm's risk of loss if the value of the currencies in the portfolio were to decline.

​A Firm Without Any Exposure to Foreign Exchange Rates Would

A Firm Without Any Exposure to Foreign Exchange Rates Would