With the foreign currency approach,if we know the appropriate discount rate in the home country and the expected inflation rates in the two countries,we can determine the appropriate foreign discount rate.

Question

Quizplus · Accepted Answer

This statement is true. The foreign currency approach involves calculating the present value of expected future cash flows in the foreign currency using a foreign discount rate. This foreign discount rate can be determined using the appropriate discount rate in the home country and the expected inflation rates in both countries. By adjusting the home country discount rate for the difference in expected inflation rates between the home country and the foreign country, we can arrive at an appropriate foreign discount rate to use in the valuation.

With the Foreign Currency Approach,if We Know the Appropriate Discount