Mia Caruso Enterprises, a U.S. manufacturer of children’s toys, has made a sale in Bulgaria and is expecting a BGN17 million cash inflow in one year. The current spot rate is S = $0.5717/ BGN and the one-year forward rate is F1 = $0.5388/BGN.

a. What is the present value of Mia Caruso’s BGN17 million inflow computed by first discounting the cash flow at the appropriate Bulgarian Lev discount rate of 6% and then converting the result into dollars?

b. What is the present value of the BGN17 million cash inflow computed by first converting the cash flow into dollars and then discounting it at the appropriate dollar discount rate of 11%?

c. What can you conclude about whether these markets are internationally integrated, based on your answers to parts (a) and (b)?