SIE practice questionmediumCurrency/exchange rate risk
An American investor buys a European stock denominated in euros. If the euro declines in value relative to the U.S. dollar, what risk does this describe?
- ACall risk
- BCurrency/exchange rate risk✓ Correct answer
- CMarket risk
- DSystematic risk
Explanation
Why B — Currency/exchange rate risk
Currency (exchange rate) risk occurs when changes in exchange rates affect the value of investments denominated in foreign currencies. Call risk concerns early bond redemption, market risk impacts all assets, and systematic risk is broader and includes currency risk among others.
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