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 after appreciation. Instead, it would borrow in a currency expected to depreciate.

A Financial Institution That Expects a Particular Foreign Currency to Appreciate