Firms that engage in foreign operations are subject to a special type of risk. A foreign operation is obliged to hold assets, incur operating costs, and/or receive revenues whose domestic currency value will change when foreign price levels and the exchange rate change. Investors and corporate financial officers would like to know how such price changes affect the value of foreign operations. Changes in the present discounted value (PDV) of a foreign income stream due to price changes are calculated for a "typical" foreign operation. The PDV technique indicates potential capital gains and losses which are substantially different from those measured by the traditional accounting techniques.' Traditional accounting practices ignore changes in the terms of trade. The PDV technique reveals that fluctuations in the terms of trade may give rise to substantial capital gains or losses. The PDV approach yields results which are applicable to a wide variety of foreign operations. It is applicable to holdings of common stock in any foreign firm; the presence of American management or "control" is not a relevant consideration. The valuation technique also can be used to determine capital gains or losses for export-import operations located either in the United States or in a foreign country. One of the more interesting results is that a firm which produces in the United States for the foreign market may have a greater exposure to the risk of exchange rate and/or price change than an operation which supplies the foreign market from production facilities located abroad.