Question: Question 1. What is the implied exchange rate between AED and INR? The spot price is 34,060/10gms in India. How can we explain the discrepancies?

Question 1. What is the implied exchange rate between AED and INR? The spot price is 34,060/10gms in India. How can we explain the discrepancies? The spot rate is INR 18.97/AED.

Question 2. The spot rate is INR 65/USD. And the one year expected spot rate is 70/USD. The expected inflation in India is 10% what is the expected inflation in the US?

Question 3: The annual interest rates in India and the US are 11.43% and 4% respectively. The current exchange rate is INR70/USD and the one year forward rate is INR 75/USD. Where should an Indian investor invest? If the forward rate is INR 76/USD then will your answer change? BI, an Indian multinational company is evaluating an overseas investment proposal.

Question 4:BI is a leading bulk drugs exporter and is considering building a plant in the UK. The project cashflows are given below and the investment costs GBP 100mn. The current spot exchange rate is INR 87.45/GBP. The interest rate in India is 10% and in the UK is 6%. BI expects to earn 20% return on similar project in India. Should BI take up this project? Time 0 1 2 3 4 5 CF (mn GBP) 100 15 40 50 30 20 Time 0 1 2 3 4 5 CF (mn Swazi Lilangeni) 1840 276 736 920 552 368

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