Describe exchange rate risk in direct foreign investment
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In a direct foreign investment (DFI), the parent company invests in assets denominated in a foreign currency. That is,
the balance sheet and the income statement of the subsidiary are written in terms of the foreign currency. The parent
company, if based in the United States, receives the repatriated (or converted) profit stream from the subsidiary in
dollars. Thus, the exchange rate risk concept applies to fluctuations in the dollar value of the assets located abroad as
well as to the fluctuations in the home currencyNdenominated profit stream. Moreover, exchange risk not only affects
immediate profits but may affect the future profit stream as well. Although exchange rate risk can be a serious
complication in international business activity, remember the principle of the risk-return trade-off: Traders and
corporations find numerous reasons why the returns from international transactions outweigh the risks.
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The proprietary theory approach largely coincides with the components of income measurement as it is presently construed in historical cost-based systems.
Which of the following is classified under "common securities"?
A) real estate B) bullion C) debenture D) bank deposit
Which of the following situations would require ?indirect? organization of a claim or complaint letter?
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