Describe the Foreign Currency and Home Currency Approaches to Capital

question 21

Essay

Describe the foreign currency and home currency approaches to capital budgeting for a foreign project.Which is better?
Which approach would you recommend a U.S.firm use?
Justify your answer.

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Definitions:

Nominal GDP

The gross domestic product measured in current prices, without adjustment for inflation.

Classical Dichotomy

The theoretical separation of nominal and real variables in the economy, suggesting that changes in the money supply only affect nominal variables.

Nominal Variables

Economic variables measured in current prices, without adjusting for inflation, reflecting their value in terms of current money.

Real Variables

Economic variables that have been adjusted for inflation, allowing for the comparison of quantities over time.