2011 Mock Question 46

While I don’t disagree that question B is incorrect, how is statement C correct? In emerging markets, correlation between equity returns and currencies is pretty high. On a side note, I love how they want us to synthesize everything at L3 yet the readings conflict with each other.

currency risk is not additive and in the case correlation below 0.5 and you should consider it in domestic investor perspective

The statement says: “Furthermore, the correlations between equity and currency markets are so low that overall currency risk is minimal.” From the CFAI Reading: Stock prices from emerging countries are more sensitive to the value of the local currency than stock prices from developed countries. (Level III Volume 5 Alternative Investments, Risk Management, and the Application of Derivatives , 4th Edition. Pearson Learning Solutions 315 - 316).