Cash flows of a cross-border project

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In Butler et al. (2012) examining international investments that involve currency exchange rate risk it is explained that the NPV of a cross-border project of a company might be severely knocked out by a mistaken forecast of the future foreign exchange rate in the investment target country. Then again CFOs would tend to carefully consider cross-border investments because of the possible currency risk on project cash flows and possibly the impact on the cost of capital (Dolde et al., 2011). How do, in your understanding foreign exchange fluctuations affect the projected cash flows of a cross-border project and how could forecasting provide remedies towards this risk?

Reference no: EM132341734

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