Evaluating Currency Risk Factors for Foreign Investments

Alpha Investments is evaluating its exposure to currency risk as it manages a portfolio that includes significant amounts of foreign securities. The firm primarily invests in European equities, which are denominated in euros (EUR), while its main investment currency is the US dollar (USD). Alpha Investments is concerned about the potential impact of various currency risk factors on its foreign investments, especially in light of recent geopolitical events and interest rate fluctuations in both the US and the Eurozone.

Which of the following currency risk factors should Alpha Investments primarily focus on to mitigate the risk of losing value in its investments due to fluctuating exchange rates?