CMA practice question 2 of 35
The risk of loss because of fluctuations in the relative value of foreign currencies is called
Full set: 1,331 questionsExchange rate risk (also called currency risk) is the possibility that changes in the value of one currency relative to another will adversely affect cash flows, asset values, or liabilities denominated in foreign currency. Firms engaged in international trade or investment are exposed to this risk through transaction, translation, and economic effects.
A. Expropriation risk concerns government seizure of foreign assets, not currency movements.
B. “Multinational beta” references systematic risk estimation, not currency value changes.
D. Undiversifiable (systematic) risk is broader market risk; exchange rate risk can be diversified or hedged.
1. Madura
International Financial Management
14th ed.
Cengage
2021
ch. 8 “Currency Exposure”
pp. 230-231.
2. MIT OpenCourseWare
15.516 International Finance
Lecture 4 “Exchange Rate Risk”
slide 8 (definition and forms of exchange-rate exposure).
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