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- How may the domestic cost of capital for a foreign venture be adjusted to account for currency rate risk, political risk, and nation risk?How can the company use currency options to hedge against exchange rate risk?Does Arbitrage destabilize foreign exchange markets? Support your logic about that statement
- Explain how multinational companies can reduce the foreign currency risk by hedging.How foreign currency risk can affect the value of a multinational company?Explain how exchange rate fluctuations affect the return from a foreign market measured in dollar terms. Discuss the empirical evidence on the effect of exchange rate uncertainty on the risk of foreign investment. Would exchange rate changes always increase the risk of foreign investment? Discuss the condition under which exchange rate changes may actually reduce the risk of foreign investment.
- Why might a foreign government’s policies be closely monitored by investors in other countries, even if the investors plan no investments in that country? Explain how monetary policy in one country can affect interest rates in other countries.Foreign exchange risk may be best defined as:a. the chance of value change in foreign exchange ratesb. the chance that the demand for your currency will dropc. the chance that exchange rates will be fixedd. the political risk posed by foreign governmentsWhen a firm enters a transaction that need to be settled in foreign currency, what are the risks that they are exposed to? What are the possible ways for a firm to avoid those risks and what will be the effect?
- If the firm had exposures in currencies such as Brazilian Real or Indonesian Rupiah,what options does the firm have in terms of hedging/foreign exchange risk management?What are the advantages or the disadvantages of hedging with currency options as opposed to future contracts in international financial transactions?Does arbitrage destabilize foreign exchange markets? If yes, which argument do yousupport? offer your own opinion on this issue.