The larger fluctuations in portfolio value of foreign exchange of financial institutions leads to ____________?
Correct answer: B. greater volatility of rates
- A. greater liquidity of assets
- B. greater volatility of rates
- C. lesser volatility of rates
- D. lesser liquidity of assets
Explanation
Larger fluctuations in the foreign-exchange portfolio value indicate greater exposure to exchange-rate movements, which is associated with greater volatility of exchange rates. Greater liquidity concerns the ease of converting assets into cash, not the size of price fluctuations.
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Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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