The above measures for minimizing exchange exposure do not comprise an all- inclusive list, but they do serve to illustrate possible components of a coordinated program of risk minimization. There are a number of inherent risks in doing business abroad-expropriation, price controls, governmental discrimination, inconvertibility of the currency, and gains and losses from exchange rate fluctuations. Management's greatest opportunity to minimize exchange losses is in the area of exchange exposure. The goal of management is the ideal exchange position in which no gains or losses due to exchange rate fluctuations can occur (net local currency assets less local currency fixed assets equals zero). There are some very definite measures which management can employ to minimize exchange exposure risk. Some of these measures are financial in character, such as local currency borrowing, purchases and sales of exchange forward or "swaps" contracts, cash management policies, and the use of local share ownership. Others are non-financial in character, such as the carrying of excess inventory which can be sold at increased prices if exchange rates decline or the investment of excess local currency cash in plant assets which will not depreciate in equivalent dollar value. Although these activities are classified as non-financial, the importance of the accounting system producing information on the need for and effectiveness of these measures must not be overlooked. If sound accounting information is provided to alert and capable management, there is much that can be done to realize normal profits on investment in foreign subsidiaries and minimize the effect of exchange rate fluctuations.

The essential conclusion of this paper is that investment and financing decisions must be kept separate. The ability to identify specific sources of funds with specific investment proposals is, at best, an illusion. This point of view is supported by an argument analogous to that applicable to many joint-cost problems of accounting as well as by the "pool of projects" and the "pool of funds" concepts. Investment decisions should be evaluated by the usual cash-flow techniques, as illustrated in this paper. The decision to finance by alternative methods should be based on the rate of interest to be charged which could legitimately be adjusted for differences in restrictions inherent in alternative sources of borrowed funds. Great care must be exercised to avoid the pitfall of constructing illusory discounted cash-flow differentials which are based upon apparent but not real differences in the amount of borrowings. As for leasing, the essential features of a long-term, non-cancellable lease must be understood; it is partially a method of financing and partially a method of investing. For proper evaluation, the financing aspects should be eliminated at the lowest rate of interest available to the company. With financing eliminated, the lease can then be compared to an outright purchase to determine which is the least costly method of acquiring the services of the equipment or facilities under consideration.

I. Introduction, 296. — II. Changes in the experiment, 297. — III. The method of the experiment, 298. — IV. Results and comparison with Fouraker and Siegel, 299. — V. Other related results, 305. — VI. Summary, 307. — Appendix I, 308. — Appendix II, 310.