Consider the following statements with respect to international considerations in determining the cost of capital.

Statement 1 : Exchange rates are an issue.

Statement 2: The country risk rating model uses a corresponding developed market as a benchmark and adds a premium for the emerging market.

Are the statements correct?

a.

Yes.

b.

No, because the country risk rating model estimates an equation for the equity risk premium for developed countries and then uses the equation and inputs associated with the emerging market to estimate the required return for emerging markets.

c.

No, because exchange rates are not an issue.