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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › currency
Hi John,
How does FOREX risk effect cost of capital? Thank you in advance.
Regards,
Anna
If the business has transactions in a foreign currency or has borrowing in a foreign currency, then the foreign exchange risk involved makes the business as a whole more risky.
If the business is more risky then shareholders will want a higher return, this increases the cost of equity which in turn will increase the WACC.
Thank you for your prompt reply!
You are welcome 🙂