Identifying a Factor in Currency Risk

Very Easy Currency Management Currency Risk Factors

In the context of currency management, understanding the factors that contribute to currency risk is crucial for effective hedging and risk assessment. Currency risk arises from fluctuations in exchange rates, which can significantly impact the value of investments and international transactions.

Which of the following is a primary factor that contributes to currency risk?

Inflation rates in the domestic economy.

Interest rate differentials between countries.

The level of foreign direct investment.

Hint

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