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T. Hultinationalcapital budgeting M ha a 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 budgeng analysis in a foreign market. For instance, a U.S.based multinational firm might conduct business in Brazil, but any prots made must be repatriated, or returned, to the parent company and come rted 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. Exch ange-R Political ate Risk Risk The risk of higher than expected taxes, tighter O O repatriaijon, or currency controls by the host country The risk of expropriation {seizure} of a foreign O O subsidiary's assets by the host country or restrictions on cash flows to the parent company The uncertainty associated with the value of cash flows 0 generated in one currency and then converted to another Price Industries has considerable operations in Indonesia, producing component electronic parts. Price'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 prots. Which type of multinational capital budgeng risk is being illustrated by Price's situation? Political risk Exchange-rate risk Corporate risk Stand-alone risk Market risk DECIDE] Firms may take steps to reduce the risk of investing in foreign countries. Identifyr whether each of the following statements are tme or false. Statement A technique to lower the risk of multinational capital budgeb'ng is to finance the foreign subsidiary with capital raised in a countryr in which the asset is not located. Generally. the political risk related to foreign investment is not added to the required rate of return. A tool to lower the risk of multinational capital budgeting is to purchase insuranoe against the loss from expropriab'on of funds. A technique to lower the risk of multinational capital budgeb'ng is to finance the foreign subsidiary with capital raised in the host oountry