To Use the Home Currency Approach to Analyze a Foreign

question 38

Multiple Choice

To use the home currency approach to analyze a foreign project, you must:

• A) Find the net present value of the project in the foreign currency and then convert the net present value into dollars using the current spot rate.
• B) Convert all foreign cash flows into dollars using the current spot rate and then compute the net present value of the project.
• C) Convert all foreign cash flows into dollars using estimated exchange rates for each time period and then compute the net present value of the project.
• D) Find the net present value of the project in the foreign currency and then convert that value into dollars using the one-year forward rate.
• E) Find the net present value of the project in the foreign currency and then convert that value into dollars using an average of the spot and the forward rates.

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Definitions:

Point Estimate

A single value given as an estimate of a population parameter, often derived from sample data.

Population Means

The average value of a particular variable across the entire population of interest, representing the central tendency.

Summary Statistics

Statistical measures that provide a brief overview of a dataset, including measures like mean, median, and standard deviation.

Confidence Interval

A range of values, derived from sample statistics, that is likely to contain the value of an unknown population parameter at a given confidence level.