Exchange rate risk is the risk that an unexpected change in exchange rates will reduce the market value of a project's cash flows.

Question

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Exchange rate risk refers to the possibility that the value of a project's cash flows will decrease due to unexpected changes in exchange rates. This risk is a common concern for businesses that engage in international trade or have foreign operations, as exchange rates can have a significant impact on the profitability of their operations.

Exchange Rate Risk Is the Risk That an Unexpected Change