CFAI 2011 Mock:Question 46 multiple, currency, investing, 2011

Howd

Currency risk should not prevent us from investing globally. Currency risk can be eliminated by hedging with currency forwards or by diversifying across multiple currencies. Furthermore, the correlations
between equity and currency markets are so low that overall currency risk is minimal.

46. In his response to Bruch’s Statement 1, Severn is least likely correct with respect to:

A. hedging with currency forwards.
B. diversifying across multiple currencies.
C. correlations between equity and currency market


Why is C not the answer? Answer is B but even C looks incorrect to me, how can they generalize saying correlation b/w equity and currency markets is low?

PalacioHill

acer Wrote:
-------------------------------------------------------
> pimpineasy Wrote:
> --------------------------------------------------
> -----
> > acer correlation between equity and currency is
> > not always low...........hence c is incorrect
>
>
> exactly....so the questions asks, which is least
> likely correct....both B and C are least likely
> correct...isnt it? or m i still missing smthng?


good gravy i see what u mean ok now im confused ...................c is not a correct statemt !

canadiananalyst

acer correlation between equity and currency is not always low...........hence c is incorrect

ohai

pimpineasy Wrote:
-------------------------------------------------------
> acer correlation between equity and currency is
> not always low...........hence c is incorrect


exactly....so the questions asks, which is least likely correct....both B and C are least likely correct...isnt it? or m i still missing smthng?

pennyless

i think the key term is "eliminated." Currency risk can be lessened, but not "eliminated" by diversifying across multiple currencies. CFAI does specifically state equity and currency markets are not correlated. I believe bonds are more so, but IMHO its one of those trick questions that tests comprehension of "eliminated"/gone