Exchange-rate risk
A) results from changes in the exchange rates between the currency of the investor and the country in which the investment is made.
B) can be hedged by using a forward or futures contract in foreign exchange.
C) cannot be eliminated.
D) results from changes in the exchange rates between the currency of the investor and the country in which the investment is made and cannot be eliminated.
E) results from changes in the exchange rates between the currency of the investor and the country in which the investment is made and can be hedged by using a forward or futures contract in foreign exchange.

Question

Quizplus · Accepted Answer

Exchange-rate risk indeed stems from fluctuations in the exchange rates between the investor's currency and the currency of the country where the investment is made. It can be managed or hedged through the use of financial instruments such as forward or futures contracts in foreign exchange, which allows investors to lock in exchange rates and mitigate potential losses due to currency fluctuations.

Exchange-Rate Risk