Which of the following conditions is most likely to expose the free cash flows of a project to exchange rate risk? (Choose the correct response.) 

A. Inputs to the project (e.g. raw materials) and outputs (e.g. sales) are both denominated in one currency, but profits are taxed based on the tax rate in a different country. 

B. Inputs to the project (e.g. raw materials) and outputs (e.g. sales) are both denominated in one currency, but capital has been borrowed in a different currency and is subject to the prevailing interest rate for that currency. 

C. Inputs to the project (e.g. raw materials) are denominated in one currency, while outputs (e.g. sales) are denominated in a different currency. 

D. Inputs to the project (e.g. raw materials) and outputs (e.g. sales) are both denominated in one currency, but profits then need to be repatriated to the parent company's country and converted to parent company's currency.