Which of the following is not true regarding currency correlations?
A) Two highly positively correlated currencies act almost as if they are the same currency.
B) If two inflow currencies are highly positively correlated, transaction exposure is somewhat offset.
C) If two inflow currencies are negatively correlated, transaction exposure is somewhat offset.
D) If two currencies, one an inflow currency and the other an outflow currency, are highly positively correlated, transaction exposure is somewhat offset.

Question

Quizplus · Accepted Answer

Currencies that are highly positively correlated do not offset transaction exposure because their movements are in the same direction. Offset occurs when currencies move in opposite directions, i.e., when they are negatively correlated.

Which of the Following Is Not True Regarding Currency Correlations