Question
Hello, few days ago I asked this question to a tutor: Suppose the dollar exchange rates of the euro and the yen are equally variable.
Hello, few days ago I asked this question to a tutor:
Suppose the dollar exchange rates of the euro and the yen are equally variable. The euro, however, tends to depreciate unexpectedly against the dollar when the return on the rest of your wealth is unexpectedly high, while the yen tends to appreciate un- expectedly in the same circumstances. As a European resident, which currency, the dollar or the yen, would be considered riskier?
Tutor answered:
Euro-denominated assets do not risk you. When the rest of your wealth goes down, the euro is worth reducing your losses, giving you higher returns in terms of dollars. Instead, the loss from your Euro assets is the most painful, e.g. When the remaining assets are in excess of expectations. Therefore, maintaining the euro is a better tool for diversifying your investment, as it reduces the volatility of your common assets.
My question is:
First line of tutor answer it says that EURO-DENOMINATED ASSETS do not risk you (with an explanation, ok fine). Then it says INSTEAD your EURO ASSETS is the most painful....
It seems to me he's talking about the same thing. What is the difference between EURO ASSETS and EURO-DENOMINATED ASSETS in this case????
Thank you!
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