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6. Assuming a company is invested in foreign projects, a. What two factors contribute to higher...

6. Assuming a company is invested in foreign projects,

a. What two factors contribute to higher risk for the projects?

b. What factor contributes to lower risk for the projects?

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Answer #1

a. two factors that contribute to higher risk for the projects:

  1. Currency Volatility- The risk of depreciation of the foreign currency with respect to the base currency.

  2. Political risk- The political instability of the country in the funds are invested may pose a great risk.

b. factors that contribute to lower risk for the projects:

  1. Currency Volatility- The risk of appreciation of the foreign currency with respect to the base currency.
  2. Political stability and support- The support from the ruling government and the political stability lowers the risk in foreign projects.
  3. Diversification- Investing in foreign projects diversifies your total portfolio.

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