is negotiated and finalized. During this time, if a foreign currency is volatile, there could be risk of loss.

To understand this further, open the file FX_IRR.xlsx from the website and select the Investment sheet. Starting in C11, there are data on the Brazilian real from August 2013 to the end of October 2013. The Brazilian real was noticeably volatile during this time. The example that has been set up is an equity investor that agreed to invest BRL6 million assuming an investment valuation and ownership percentage set on August 4, 2013, but did not finalize and transmit funds until September 29, 2013. The equity investor would have completed return analyses at the August rate of BRL2.450 to USD, but would have actually invested at the September rate of BRL2.181 to USD. At BRL2.450 to USD the investor would have to convert USD2,449,170 to make the investment; however, after eight weeks the exchange rate has moved such that to invest the same BRL6 million the investor would have to invest USD2,751,511. Immediately, the investor has lost USD302,342. From an IRR perspective, ignoring exit exchange rate risk, if the investor assumed they could exit in 5 years for USD5 million, they would have immediately been down 2.65 percent IRR (i.e., difference between a potential 15.34 percent IRR assuming that was how much was converted, versus a 12.69 percent IRR caused by having to use more USD for investment due to the rate change) because of the exchange rate. Figure 2.6 shows the situation from the worksheet.

Figure 2.6 Between agreement and closure, the BRL appreciated causing a loss to the USD-funded investor.