ASSIGNMENT

ASSIGNMENT

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Project description
Instructions:

1. Please comment briefly on Susan’s post below for number 1.
2. Please comment briefly on Questions 2 and 3 from other classmates
making comments on Susan’s post in number 1.
3. Please answer Nicole’s post in number 4

Susan’s answer
1. Suppose your firm invests $100,000 in a project in Italy. At the
time the exchange rate is $1.25 = €1.00. One year later the exchange
rate is the same, but the Italian government has expropriated your
firm’s assets paying only €80,000 in compensation. This is an example
of
exchange rate risk.
political risk.
market imperfections.
none of the above, since $100,000 = €80,000 × $1.25/€1.00

Expropriation is defined as the act of the government taking personal
property for public benefit and is one aspect of political risk in
international finance. I chose political risk as the answer to this
question because even through the firm is being returned their initial
outlay ($100,000 = €80,000 × $1.25/€1.00) their “investment” in the
project is being expropriated, they no longer have ownership/property
rights.

2. Iquisha’s below comments on Susan’s post above:

Thank you for your explanation Susan! I chose the latter answer
because I did not read the question carefully, that this was a case of
expropriation. I assumed since $100,000=€80,000 that there no
fluctuation.

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