Mia Caruso Enterprises, a U.S. manufacturer of childrens toys, has made a sale in India and is
Question:
Mia Caruso Enterprises, a U.S. manufacturer of children’s toys, has made a sale in India and is expecting a 17 million rupee cash inflow in one year. (The currency of India is the rupee). The current spot rate is S = $0.5717/rupee and the one-year forward rate is F1 = $0.5388/rupee.
a. What is the present value of Mia Caruso’s 17 million rupee inflow computed by first discounting the cash flow at the appropriate rupee discount rate of 6% and then converting the result into dollars?
b. What is the present value of Mia Caruso’s rupee 17 million inflow computed by first converting the cash flow into dollars and then discounting 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
(a) and (b)?
Step by Step Answer:
Fundamentals Of Corporate Finance
ISBN: 9781292437156
5th Global Edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford