Question

International capital budgeting differs from domestic capital budgeting as cash inflows and outflows occur in a foreign currency and foreign investments potentially face significant political risk.

a. True
b. False

Answer 1

The correct answer is letter "A": True.

Step-by-step explanation:

When a firm has direct investments abroad, the budget computation for the firm domestically is different from the estimates projected abroad because of differences in operating currencies. The firm uses the same currency to report gains or losses but the currency the investment abroad uses for its day-to-day operations is possibly different.

Then, the currency exchange rate translations affect the budget of the foreign branch that can be positive for the company or negative if there region where the branch is facing major economic or political problems.