The effects of fluctuating foreign exchange rates may
I. increase a U. S. investor's rate of return.
II. decrease a U. S. investor's rate of return.
III. can be avoided by investing in ADRs.
IV. can be avoided by investing in mutual funds that specialize in foreign stocks.

Question

Quizplus · Accepted Answer

Fluctuating foreign exchange rates can increase or decrease a U.S. investor's rate of return depending on the direction of the currency movement. However, investing in ADRs (American Depositary Receipts) or mutual funds specializing in foreign stocks does not avoid the effects of currency fluctuations, as the underlying value of these investments is still affected by changes in foreign exchange rates.

The Effects of Fluctuating Foreign Exchange Rates May