All of the following statements regarding the effects of exchange rates on international portfolio diversification are true,except:

Question

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The other statements are true. The volatile exchange rates associated with the current floating exchange rate regime do introduce an additional element of risk into investing in foreign assets (B), adverse exchange rate movements can transform otherwise profitable investments into unprofitable investments (C), and the uncertainty engendered by volatile exchange rates may act as a brake on the otherwise rapid growth of the international capital market (D). However, A is not true because volatile exchange rates actually decrease the risk-reducing effects of international portfolio diversification, as they increase the correlation between the returns of different assets from different countries.

All of the Following Statements Regarding the Effects of Exchange