Mia Caruso Enterprises, a U.S. manufacturer of children's toys, has made a sale in Bulgaria and is

Question:

Mia Caruso Enterprises, a U.S. manufacturer of children's toys, has made a sale in Bulgaria and is expecting a BGN4 million cash inflow in one year. The current spot rate is S = $1.80/BGN and the one-year forward rate is F1 = $1.8857/BGN.
a. What is the present value of Mia Caruso's BGN4 million inflow computed by first discounting the cash flow at the appropriate Bulgarian Lev of 5%, and then converting the result into dollars?
b. What is the present value of Mia Caruso's BGN4 million inflow computed by first converting the cash flow into dollars, and then discounting at the appropriate dollar of 10%?
c. What can you conclude about whether these markets are internationally integrated, based on your answers to parts a and b?
Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...