Exchange Rate Risk Political Risk Risk Description The risk of higher than expected taxes, tighter repatriation, or currency controls by the host country. o 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 related to the foreign currency cash flows that will be turned over to the parent company and converted into U.S. dollars. o Identify whether each of the following statements is true or false. Statements True False Multinational capital budgeting is not always riskier than domestic investment. The firm may incur less risk, because of international diversification. o O Generally, the political risk related to foreign investment is added to the required rate of return. o O A technique to lower the risk of multinational capital budgeting is to finance the foreign subsidiary with funds raised in the host country. o o o A tool to lower the risk of multinational capital budgeting is to purchase insurance against the loss from expropriation of funds. o