1. A foreign project generates a negative cash flow in year 1 and positive cash flows in years 2 through 5. The NPV for this project will be lower if the foreign currency in year 1 and in years 2 through 5.
depreciates; depreciates
appreciates; appreciates
depreciates; appreciates
appreciates; depreciates
2. When a U.S.-based MNC has a subsidiary in Mexico that needs financing, the MNC's exposure to exchange rate risk can be minimized if:
the parent issues dollar-denominated equity and provides the proceeds to the subsidiary.
the parent provides its retained earnings to the Mexican subsidiary.
the subsidiary obtains a dollar-denominated loan from a financial institution.
the subsidiary obtains a peso-denominated loan from a financial institution.