A financial institution that expects a particular foreign currency to appreciate may try to benefit from its expectation by borrowing funds in that currency and repaying the loan after the exchange rate changes in the expected manner.

Question

Quizplus · Accepted Answer

A financial institution expecting a currency to appreciate would not borrow in that currency, as it would have to repay more in terms of its own currency if the foreign currency appreciates. Instead, it would invest in that currency to benefit from the appreciation.

A Financial Institution That Expects a Particular Foreign Currency to Appreciate