Exchange rate changes decreases risk of foreign investment
Would exchange rate changes always raise the risk of the foreign investment? Explain some of the condition under which exchange rate changes can actually decrease the risk of foreign investment.
Expert
Changes of exchange rate need not always increases the risk of foreign investment. When covariance between exchange rate changes and local market returns is sufficiently negative to offset the positive variance of exchange rate changes, exchange rate volatility may actually decrease the risk of foreign investment.
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I have worked the problem. I need to know if it is correct. If not, what I'm missing.
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