Question：Are the following statements correct or incorrect?
Statement 1.
A company is only exposed to currency risk if it exports or imports goods or services, or borrows or invests in a foreign currency.
Statement 2.
When interest rates on the euro are lower than interest rates on sterling a UK company with no other cash flows in euros will not save money by borrowing in euros.
A. Both statements are correct.
B. Both statements are incorrect.
C. Statement 1 only is correct.
D. Statement 2 only is correct.
The correct answer is:Statement 2 only is correct.
解析：Even when a company does not export or import, it might be exposed to the threat of foreign competition in its domestic markets. A strong domestic currency makes foreign imports relatively cheap. Borrowing in a foreign currency at a lower rate of interest is not a cheap option, because the foreign currency will be quoted forward at a premium, and its spot rate value could also strengthen over time. Since the foreign currency loan has to be repaid at some time, and since interest payments will be made in the currency, the effective cost could be about the same as borrowing in domestic currency.
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