Blocked funds may penalize a project if the return on the forced reinvestment in the foreign country is less than the required rate of return on the project.

Question

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Blocked funds refer to restrictions on the repatriation of profits or capital from a foreign country. If the funds are reinvested in the foreign country at a lower rate of return than the required rate of return on the project, it can lead to a penalty on the project's return.

Blocked Funds May Penalize a Project If the Return on the Forced