7. Multinational capital budgeting Aa Aa The basic principles of capital budgeting are valid for both domestic and multinational capital budgeting analysis. However, it is important to recognize the unique risks that multinational firms face when they perform capital budgeting analysis in a foreign market. For instance, a U.S.-based multinational firm might conduct business in Brazil, but any profits made must be repatriated, or returned, to the parent company and converted to U.S. dollars. There are significant risks inherent in these rather simple operations. In the table below, correctly identify whether each type of risk being described is an exchange-rate risk or a political risk. Exchange-R Political ate Risk Risk The risk related to the foreign currency cash flows that will be turned over to the parent company and converted into U.S. dollars The risk of expropriation (seizure) of a foreign subsidiary's assets by the host country or restrictions on cash flows to the parent company The risk that action by the host country will reduce the value of the investment LoRusso Industries has considerable operations in Indonesia, producing component electronic parts. LoRusso's Indonesian operation has been very successful, but the firm is now concerned about the effect of the decline in the value of the Indonesian rupiah on the firm's profits