DEVRY FIN 516 Week 7 Homework Set
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FIN 516 Week 7 Homework Set
Problem 31-1 on Exchange Rates Based on Chapter 31 International Corporate Finance
You are a U . S . investor who is trying to calculate the present value of a € 5 million cash inflow that will occur 1 year in the future . The spot exchange rate is S = $ 1.25 /€ and the forward rate is F1 = $ 1.215 /€. You estimate that the appropriate dollar discount rate for this cash flow is 4 % and the appropriate euro discount rate is 7 %. a ) What is the present value of the € 5 million cash inflow computed by first discounting the euro and then converting it into dollars ?
b ) What is the present value of the € 5 million cash inflow computed by first converting the cash flow into dollars and then discounting ?
c ) What can you conclude about whether these markets are internationally integrated , based on your answers to parts a ) and b )?
Problem 31-2 on Currency Appreciation Based on Chapter 31 International Corporate Finance