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International Risks

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International Risks

International Risks The investment of a firm into any project carries certain risks and undertaking an investment in a foreign market compounds these risks. Even after all projections and ratios provide positive feedback some serious concerns remain. There is always the uncertainty of knowing how competitors will respond; if the project can remain within budgeted projections; or if sales growth will meet projected estimates (University of Phoenix, 2007). In addition to these standard risks, investors in foreign markets are concerned with the differences in changing exchange rates, political and ethical influences and tax expenses. The Currency Exchange The currency exchange market fluctuates similar to that of stocks and bonds. When a company wants to purchase or invest into a foreign market it is first determined what one unit of the investors currency is equal to in one unit of the foreign currency. A market’s currency value is influenced by high or low activity, supply and demand and other economic influences (University of Phoenix, 2007). Seeing a gain in the foreign market does not necessarily mean that the gain will be realized in the home currency if the foreign currency has depreciated against the home currency(University of Phoenix, 2007). The currency exchange rate is of concern to investors, but, with strategic planning can be managed. An investing firm should limit the amount of times currency is changed back and forth. This limits the exchange rate effect. Another effective method would be to deposit large amounts at a local financial institution where the investment can draw from it to maintain fixed costs (University of Phoenix, 2007). This keeps the currency within the local market. When profits are generated the firm should monitor the current exchange rate to

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