Suppose you are an investor that holds foreign bonds. What does it mean if bonds have positive currency exposure to the foreign currency? A) As interest rates go up, the value of the foreign currency falls. B) The exposure is always a return enhance attribute of the foreign bond. C) As interest rates go up, the value of the foreign currency increases. Your answer: A was correct! Positive exposure implies that interest rate changes and currency valuation changes amplify the impact of each other. That is, as local rates increase (bad for bond investors) the value of the local currency tends to fall (bad for foreign bond investors). as interest rates increase, local currency decreases??? or are they referring to nominal??
As interest rates go up —> value of the bonds go down, so does the currency. There is a positive correlation between the two. That’s what they mean when they say bonds have positive currency exposure. I think.