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An analyst is managing a portfolio denominated in a foreign currency. In her analysis, she estimates that the hedge ratio of the portfolio is equal to one, and she implements the appropriate hedge. She also forecasts that there will be a negative correlation between the interest rate in her country and the interest rate associated with the foreign currency. This relationship of the interest rates: A. will reduce but not eliminate the basis risk of the hedged position. B. will introduce basis risk to the hedged position. C. is unrelated to basis risk. |