The Home Currency Approach

question 18

Multiple Choice

The home currency approach:

• A)discounts all 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 U.S.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 U.S.dollars.

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Definitions:

Total Product Curve

A graphical representation in economics that shows the total quantity of output produced by a firm for varying quantities of a single input.

Variable Input

Inputs or resources whose usage varies with the level of production output, such as raw materials or labor.

Production Level

Refers to the total quantity of goods or services produced by a firm or industry during a specific period.

Marginal Returns

The additional output generated by adding one more unit of a specific input, while keeping other inputs constant.