The Home Currency Approach

question 291

Multiple Choice

The home currency approach:

• A) Discounts all of a project's foreign cash flows using the current spot rate.
• B) Employs uncovered interest parity to project future exchange rates.
• C) Computes the net present value (NPV) of a project in the foreign currency and then converts that NPV into Canadian dollars.
• D) Utilizes the international Fisher effect to compute the NPV of foreign cash flows in the foreign currency.
• E) Utilizes the international Fisher effect to compute the relevant exchange rates needed to compute the NPV of foreign cash flows in Canadian dollars.

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Definitions:

Independent Variable

The variable that is manipulated by the researcher to examine its impact on the dependent variable in an experiment.

Dependent Variables

Variables in a study that are expected to change or vary as a result of manipulations or treatments applied to independent variables.

Factorial Designs

Experimental designs that allow investigation of the effects of multiple factors (independent variables) and their interactions on one or more outcomes (dependent variables).

Real-world Conditions

Circumstances or situations that occur in everyday life outside of controlled or laboratory settings.