Mamma Mia Pizza has invested $1,000,000 in a restaurant in Rome. At the time of the investment the exchange rate is $1.25 = 1.00. A year later the exchange rate was the same, but the Italian government expropriated Mamma Mias assets paying only 800,000 in compensation. This is an example of:

Multiple Choice

• market imperfections.

• None of the options.

• Expropriation by the Italian government did not constitute a risk since $1,000,000 = 800,000 $1.25/1.00.

• political risk.

• exchange rate risk.