9. Multinational capital budgeting

In the following table, correctly identify whether each type of risk being described is an exchange rate risk or a political risk.

Risk Description	Exchange Rate Risk	Political Risk
The risk that action by the host country will reduce the value of the investment.
The risk of expropriation (seizure) of a foreign subsidiarys assets by the host country or restrictions on cash flows to the parent company.
The risk that expected future exchange rates will differ from the actual future exchange rates when the foreign cash flows are converted into U.S. dollars.

Identify whether each of the following statements is true or false.

Statements	True	False
Generally, the political risk related to foreign investment is not added to the required rate of return.
A technique to lower the risk of multinational capital budgeting is to finance the foreign subsidiary with funds raised in a country in which the asset is not located.
A technique to lower the risk of multinational capital budgeting is to finance the foreign subsidiary with funds raised in the host country.
A tool to lower the risk of multinational capital budgeting is to purchase insurance against the loss from expropriation of funds.