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Condition to reduce risk when exchange rate changes

Would exchange rate alter always enhance the risk of foreign investment? Describe the condition under which exchange rate changes may in fact reduce the risk of foreign investment.

Exchange rates changes require not always enhance the risk of foreign investment. While the covariance among exchange rate changes & the local market returns is adequately negative to offset the positive variance of exchange rate changes, exchange rate volatility can decrease the risk of foreign investment actually.

 

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