4. International Finance

International Capital Budgeting — Quiz

Test your understanding of international capital budgeting with 5 practice questions.

Practice Questions

Question 1

Which approach in international capital budgeting discounts foreign-currency cash flows at the project's local cost of capital before converting them into the firm's home currency?

Question 2

If a project’s nominal discount rate is 12\% and expected inflation in the host country is 6\%, what is the approximate real discount rate according to the Fisher equation?

Question 3

A project is expected to generate €100,000 in one year. The euro is forecast to depreciate by 5\% against the dollar, moving the spot rate from \$1.20 per € to \$1.26 per €. If the appropriate discount rate in dollars is 10\%, what is the present value in USD?

Question 4

Which scenario would most likely lead to an increase in the country risk premium added to a foreign project’s discount rate?

Question 5

A firm has the right to postpone the start of a foreign investment project for up to two years to gather additional market data. Which type of real option does this represent?