alleryStart learning →If PPP, interest rate parity and the Fisher effect all hold, a firm
Afaces maximum risk
Bmust always use options
Cneed not fear forex risk
Dhas no hedges at all
Answer & Solution
Correct answer: C. need not fear forex risk
With efficient markets satisfying all three parity conditions, expected rate changes offset price and interest differences, so significant exposure needs a deviation from them.
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