Mia Caruso Enterprises, a U.S. manufacturer of children’s toys, has made a sale in India and is expecting a 400 million rupee cash inflow in one year. (The currency of India is the rupee). The current spot rate is S = $0.022/rupee and the one-year forward rate is F1 = $0.021/rupee.

a. What is the present value of Mia Caruso’s 400 million rupee inflow computed by first discounting the cash flow at the appropriate rupee discount rate of 10% and then converting the result into dollars?

b. What is the present value of Mia Caruso’s rupee 400 million inflow computed by first converting the cash flow into dollars and then discounting at the appropriate dollar discount rate of 5%?

c. What can you conclude about whether these markets are internationally integrated, based on your answers to

(a) and (b)?