Suppose Your Firm Invests $100,000 in a Project in Italy

question 7

Multiple Choice

Suppose your firm invests $100,000 in a project in Italy.At the time the exchange rate is $1.25 = €1.00.One year later the exchange rate is the same,but the Italian government has expropriated your firm's assets paying only €80,000 in compensation.This is an example of

• A)exchange rate risk.
• B)political risk.
• C)market imperfections.
• D)none of the above, since $100,000 = €80,000 * $1.25/€1.00

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Definitions:

Economic Stagnation

A prolonged period of little or no growth in the economy, characterized by high unemployment, stagnant wages, and low levels of investment and consumer spending.

Unemployment

The condition of not having a job despite actively seeking work, often used as an economic indicator reflecting the health of an economy.

Foreign Policy

A government's strategy in dealing with other nations, defining how it interacts diplomatically, economically, and militarily with countries around the world.

Nuclear Arms Race

the competitive buildup of nuclear weapons, primarily between the United States and the Soviet Union during the Cold War, leading to the development of vast arsenals on both sides.