(Choose 1 answer)
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
A. exchange rate risk.
B. political risk.
C. market imperfections.
D. none of the options, since $100,000 = €80,000 × $1.25/€1.00.
4
