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    Ch. 34: International Financial Management Problem 1

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    Mukul Kadyan
    The document contains 9 problems related to international financial management topics such as spot and forward rates, premiums and discounts, interest rates of different countries, and expected inflation rates. It also includes 2 multi-part problems analyzing the net present value and internal rate of return for projects in Thailand and India. Key calculations involve spot and forward exchange rates, interest rates, inflation rates, and present and future values of cash flows.

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    Ch. 34: International Financial Management Problem 1

    Uploaded by

    Mukul Kadyan
    19 views4 pages
    The document contains 9 problems related to international financial management topics such as spot and forward rates, premiums and discounts, interest rates of different countries, and expected inflation rates. It also includes 2 multi-part problems analyzing the net present value and internal rate of return for projects in Thailand and India. Key calculations involve spot and forward exchange rates, interest rates, inflation rates, and present and future values of cash flows.

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    Ch-34

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    The document contains 9 problems related to international financial management topics such as spot and forward rates, premiums and discounts, interest rates of different countries, and expected inflation rates. It also includes 2 multi-part problems analyzing the net present value and internal rate of return for projects in Thailand and India. Key calculations involve spot and forward exchange rates, interest rates, inflation rates, and present and future values of cash flows.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    19 views4 pages

    Ch. 34: International Financial Management Problem 1

    Uploaded by

    Mukul Kadyan
    The document contains 9 problems related to international financial management topics such as spot and forward rates, premiums and discounts, interest rates of different countries, and expected inflation rates. It also includes 2 multi-part problems analyzing the net present value and internal rate of return for projects in Thailand and India. Key calculations involve spot and forward exchange rates, interest rates, inflation rates, and present and future values of cash flows.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 4

    Ch.

    34: International Financial Management


    Problem 1

    Spot rate, Pound/Dollar 1.5763 0.6344


    90-day forward rate 1.5436 0.6478
    Forward dollar premium:
    [(1.5763 - 1.5436)/1.5436]/(360/90) 8.5%
    Forward pound discount:
    [(0.6478 - 0.6344)/0.6344]/(360/90) 8.5%

    Problem 2

    60-day forward rate, INR/$ 40.85


    Current spot, INR/$ 38.95
    Forward INR premium: [{(40.85/38.95) - 1}/(360/60)] 29.3%

    Problem 3

    1-year INR interest rate 15%


    1-year $ interest rate 10%
    Spot rate, INR/$ 39.80
    Forward rate, INR/$: [(1.15/1.10) x 39.80] 41.61

    Invest in India for 1Yr at 15% 10,000,000


    Receive after one year 11,500,000

    Borrow $ at current spot rate: [10,000,000/39.8] 251,256


    Invest in US for one year : [251,256 x 1.10] 276,382
    and obtain INR: [276,382 x 41.61] 11,500,000

    Problem 4

    Expected inflation in France 5%


    Expected inflation in Italy 7%
    1-year interest rate in France 8.00%
    1-year interest rate in Italy: [8% x (1.07/1.05)] 8.15%

    Problem 5

    1-year forward rate, B/$ 46.75


    Expected baht inflation rate 9%
    Expected $ inflation rate 4%
    Current spot rate, B/$: [46.75 x (1.04/1.09)] 44.61

    Problem 6

    Expected INR inflation rate 5%


    Current spot rate, Won/INR 1.2345
    1-year forward rate, Won/INR 1.2567
    Expected Won inflation rate: [{(1.2567/1.2345) x 1.05} - 1] 6.9%
    Problem 7

    Yen/FF exchange rate 105.2


    INR/FF exchange rate 6.5
    Yen/INR exchange rate: [105.2/6.5] 16.185
    Problem 8

    3 month $ (million) receivable by Thai Co. 5.00


    Current spot rate, B/$ 43.75
    3-month forward rate, B/$ 45.35
    Spot rate at the time money is received 44.10
    Total amount, no coverage, B million: [5 x 44.10] 220.5
    Total amount, partial coverage, B million:
    [0.6 x 5 x 45.35 + 0.4 x 5 x 44.1 224.25
    Total amount, full cover, B million: [5 x 45.35] 226.75
    Cost of forward contract, full cover:
    [(45.35 - 44.10)/44.10](360/90) 11.34%

    Problem 9

    Thailand India Expected


    Risk-premium 7.25% 7.25% Year NCF (baht)
    Risk-free interest rate 12% 10% 0 -25.00
    Expected inflation rate 8% 1 4.00
    Opportunity cost of capital 19.38% 17.25% 2 4.32
    Current exchange rate 1.105 0.905 3 4.67
    Investment (baht, million) 25 4 5.04
    Project life (years) 12 5 5.44
    Annual real cash flows (baht, million) 4 6 5.88
    7 6.35
    8 6.86
    9 7.40
    10 8.00
    11 8.64
    12 9.33
    NPV
    IRR
    PVF @ PV Spot rate NCF PVF @ PV
    19.38% (baht) INR/baht (INR) 17.25% (INR)
    1.000 -25.00 0.9050 -22.63 1.000 -22.63
    0.838 3.35 0.8888 3.56 0.853 3.03
    0.702 3.03 0.8730 3.77 0.727 2.74
    0.588 2.74 0.8574 4.00 0.620 2.48
    0.492 2.48 0.8421 4.24 0.529 2.25
    0.412 2.24 0.8270 4.50 0.451 2.03
    0.345 2.03 0.8123 4.77 0.385 1.84
    0.289 1.84 0.7978 5.06 0.328 1.66
    0.242 1.66 0.7835 5.37 0.280 1.50
    0.203 1.50 0.7695 5.70 0.239 1.36
    0.170 1.36 0.7558 6.04 0.204 1.23
    0.142 1.23 0.7423 6.41 0.174 1.11
    0.119 1.11 0.7290 6.80 0.148 1.01
    -0.42 -0.38
    19.0% 16.9%

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