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The transfer of capital, managerial, and technical assets to a
foreign country. Companies face both long-term and short-term currency risks related to both
the invested capital and the cash flows resulting from it. Long-term currency risk
can be minimized by financing the foreign investment at least partly in the local
capital markets rather than with dollar-denominated capital from the parent
company. This step ensures that the project’s revenues, operating costs, and
financing costs will be in the local currency. Likewise, the dollar value of shortterm, local-currency cash flows can be protected by using special securities and
strategies such as futures, forwards, and options market instruments.
Political risks can be minimized by using both operating and financial strategies. For example, by structuring the investment as a joint venture and selecting a
well-connected local partner, the U.S. company can minimize the risk of its operations being seized or harassed. Companies also can protect themselves from having their investment returns blocked by local gov...
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This document was uploaded on 01/19/2014.
- Fall '13