For an investor who starts with dollars and wants to end up with dollars in the future,which of the following choices is an example of uncovered international investment?
A) Sell dollars at the spot rate, invest the proceeds in foreign currency-denominated financial instruments, and sign a forward exchange contract to buy the foreign currency.
B) Sell dollars at the spot rate, invest the proceeds in foreign currency-denominated financial instruments, and sign a forward exchange contract to buy dollars.
C) Sell dollars at the spot rate, invest the proceeds in foreign currency-denominated financial instruments, and then buy dollars at the future spot rate.
D) Buy a dollar-denominated financial asset.

Question

Quizplus · Accepted Answer

Uncovered international investment involves selling the home currency (in this case, dollars) at the spot rate, investing in foreign currency-denominated assets, and then converting the returns back into the home currency at the future spot rate, without using forward contracts to hedge against exchange rate risk.

For an Investor Who Starts with Dollars and Wants to End