If the foreign currency is expected to depreciate:
A) a foreign currency investment is more likely to show a higher effective rate of return compared with . a domestic investment, than it would if the foreign currency were expected to appreciate
B) a domestic currency investment is more likely to show a lower effective rate of return compared . with a foreign investment, than it would if the foreign currency were expected to appreciate
C) a foreign currency investment is less likely to show a higher effective rate of return compared with a . domestic investment, than it would if the foreign currency were expected to appreciate
D) a foreign currency investment will definitely show a higher effective rate of return compared with a domestic investment

Question

Quizplus · Accepted Answer

When a foreign currency is expected to depreciate, investments in that currency are less likely to yield a higher effective rate of return compared to domestic investments, because the depreciation negatively affects the value of returns when converted back to the investor's home currency.

If the Foreign Currency Is Expected to Depreciate