Chapter 9

1. Warden Co. is considering a project in Venezuela that will be very profitable

if the local currency (bolivar) appreciates against the dollar. If the bolivar
depreciates, the project will result in losses. Warden Co. forecasts that the
bolivar will appreciate. The bolivar’s value historically has been very volatile.
As a manager of Warden Co., would you be comfortable with this project?
Explain

I’ve always thought that all companies must go through a big risk to have a big
success. But in this case the percentage of the project’s success is too low because
of the volatility of the bolivar. So, what I would do is to back off from this project
and following what we’ve learned in this chapter that is that forecast of currencies
are subject to a high degree of error.