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QUESTION 16 If the return on the forced reinvestment in the foreign country is less than...

QUESTION 16 If the return on the forced reinvestment in the foreign country is less than the required rate of return on the project, blocked funds may penalise the project

True or False

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Answer #1

TRUE

If the return on the forced reinvestment in the foreign country is less than the required rate of return on the project, blocked funds may penalise the project

Blocked funds are nonthing but the funds that cannot be repatriated to the home country. If, for example, the required rate of return on the project is 10%, and if the forced reinvestment in the foreign country returns only 6%, then it is a loss to the company. In other words, the forced reinvestment penalize the project.

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