The variance in financing costs over time is ____ for foreign financing than domestic financing. The variance when financing with foreign currencies is lower when those currencies exhibit ____ correlations, assuming the firm has no other business in those currencies.
A) lower; low
B) lower; high
C) higher; high
D) higher; low

Question

Quizplus · Accepted Answer

Foreign financing typically involves higher variance due to exchange rate fluctuations. When foreign currencies have low correlations, it increases the risk and variance because the currencies do not move together, leading to unpredictable financing costs.

The Variance in Financing Costs Over Time Is ____ for Foreign