What are common risks associated with foreign investments?

Foreign investments are subject to a variety of risks that can significantly impact their viability and profitability. The correct choice highlights some of the most prevalent risks associated with investing in foreign markets.

Currency risk arises from fluctuations in exchange rates, which can affect the value of returns from an investment when converted back into the investor's home currency. Political risk involves the potential for changes in political environments that can harm investments, such as government instability, expropriation, or changes in policy that may disadvantage foreign investors. Economic instability, which includes factors such as inflation, recession, or economic mismanagement, can also pose significant challenges to foreign investments. Additionally, regulatory changes can affect the operational landscape for investors; sudden alterations in laws or regulations can impose additional costs or limit the ability to operate profitably.

In contrast, the other options mention risks that, while relevant in certain contexts, do not specifically reflect the main challenges faced when investing abroad. Operational risk and employee turnover, while significant for businesses in general, are more focused on internal management issues rather than external factors affecting international investment. Audit risks and misreporting are pertinent to financial integrity but do not capture the external influences that are prevalent in foreign investments. Overhead costs and supplier reliability primarily relate to operational aspects of