Why does discounting the cash flows of a foreign investment using the foreign cost of capital, then converting that to the home currency at the spot rate, yield the same NPV as converting the projects cash flows to domestic currency at the forward rate and then discounting them at the domestic cost of capital?
Answer to relevant QuestionsWhy is it not surprising to find that the risk premium on the world market portfolio is lower than the domestic risk premium? An investor who notices that interest rates are much lower in Japan than in the United States borrows in Japan and invests the proceeds in the United States. This is called uncovered interest arbitrage, but is it really ...How are employee stock options different from the options that trade on the exchanges and in the over-the-counter market? Refer to the data in the following table. Strike Price Put Price $30 ....... $1.00 $35 ....... $3.50 $40 ....... $6.50 Suppose an investor purchases 1 put with X = $30 and one put with X = $40 and sells two puts with X = ...Why do you think European governments and stock exchanges want to promote a vibrant entrepreneurial sector? Can you think of any competitive advantages that may accrue to Europe, due to its relatively late start in ...
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