A firm without any exposure to foreign exchange rates would likely increase this exposure the most by:
A) borrowing domestically.
B) borrowing a portfolio of foreign currencies that are not highly correlated.
C) borrowing a portfolio of foreign currencies that are highly correlated.
D) borrowing two foreign currencies that are negatively correlated.

Question

Quizplus · Accepted Answer

Borrowing a portfolio of foreign currencies that are highly correlated would increase the firm's exposure to foreign exchange rates the most because it would increase the firm's sensitivity to changes in the exchange rates of those currencies.

A Firm Without Any Exposure to Foreign Exchange Rates Would