The Foreign Currency Approach to Capital Budgeting Analysis

question 69

Multiple Choice

The foreign currency approach to capital budgeting analysis

• A)is computationally harder to use than the home currency approach.
• B)produces different results than the home currency approach.
• C)computes the NPV of a project in both the foreign and the domestic currency.
• D)relies on the international Fisher effect for the exchange rate.
• E)relies on the uncovered interest rate parity to project multiple exchange rates.

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Definitions:

Hypotenuse

The longest side of a right-angled triangle, directly opposite the right angle, calculated using the Pythagorean theorem.

Inches

A unit of measurement equal to 1/12th of a foot, used primarily in the United States and United Kingdom.

Vector Addition

A method of adding angles.

Adjacent Side

In a right-angled triangle, the side that is next to the angle in question, but is not the hypotenuse.