One of the three dimensions in which international finance is set apart from other areas of finance as discussed in Week $1,$ Lecture $1($Chapter $1$ of the textbook$)$ is foreign exchange and political risks. Why foreign exchange risks and political are specific to international finance,

Because "political risks" in context of international finance refers to the political uncertainties overseas specifically.

All of the available choices are true.

Because purely domestic financial transactions would not be subject to the risk associated with foreign exchange rates and foreign political uncertainties.

None of the available choices are true.

Question $23$

$2\mathrm{.}5$ pts

Same facts as above: why can these risks pose a serious threat to the company if they are not adequately managed?

An unfavorable change in foreign exchange rate can significantly decrease or even reverse any gains the investor has made in foreign investments by decreasing the domestic currency of the investments when the foreign currency's value falls.

An unfavorable change in foreign exchange rate can significantly increase and further amplify any gains the investor has made in foreign investments by decreasing the domestic currency of the investments when the foreign currency's value falls.

A favorable change in foreign exchange rate can significantly decrease or even reverse any gains the investor has made in foreign investments by decreasing the domestic currency of the investments when the foreign currency's value rises.