Final answer:
Businesses and financial investors often link portfolio investment strategies to predictions about future exchange rates, seeking to make a profit from these fluctuations.
Step-by-step explanation:
The subject of this question is portfolio investment and its relationship with exchange rates. Business people or financial investors assess the potential profits from buying assets in a foreign currency, taking into account possible changes in exchange rates.
An investor might convert a sum of money into a foreign currency, such as the British pound, with the expectation that the pound's value will increase against their home currency. For instance, if an investor exchanges $24,000 for 16,000 pounds at an exchange rate of $1.50 per pound, and then the pound's value rises to $1.60, they could convert back to $25,600, securing a profit.
Conversely, if the expectation is that the pound's value will decrease, the investor might start with pounds, convert them to a stronger currency, and later convert back after the pound's depreciation to make a profit. However, these strategies involve risks, as profits are not guaranteed and losses may occur if exchange rates move unfavorably.