Question

How can future appreciation/depreciation of the currency of a parent company affect the value of a project established in another country. Relative cost (Ignore possible exchange rate effects.) (10marks)

Answer 1

Solution :- The future appreciation/depreciation of the currency of a parent company affect the value of a project established in another country as Appreciation if we say generally is just a increase in the value of asset over time and opposite depreciation.

Same like in currency there is a risk in the projects also of very new government regulations. The change in economy may lead to change in currency which leads to appreciate or depreciate it.  

if the currency of a country of parent company depreciate then there is need of more money to convert in the required amount for the project in another country similarly in case of currency of a country in which parent company if appreciate then there is low money required as estimated which affects the value of a project.

Also depreciation and appreciation in currency leads to change due to interest rates and change in interest rates affect the required returns from the projects which can affect the value of the project.