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# Present Value

?5 million cash inflow; Occurs 1 year in the future
Spot exchange rate is S=\$1.25/ ? and the forward rate is F1 =\$1.215/?
Dollar discount for cash flow is 4%
Euro discount rate is 7%
1. What is the present value of ?5 million cash inflow computed by first discounting the euro and then converting it into dollars?
2. What is the present value of the ?5 million cash inflow computed by first converting the cash flow into dollars and then discounting it?
3. Are these markets internationally integrated? Explain Based on 1 &2.

#### Solution Preview

1. What is the present value of ?5 million cash inflow computed by first discounting the euro and then converting it into dollars?

In this case the cash flow in Euro is 5,000,000 at the end of one year. The discounting rate for Euro is 7%. The PV of cash flows in Euro is ...

#### Solution Summary

The solution explains how to calculate the present value of cash flows which are in a foreign currency

\$2.19