1)Assume it is July 2016. the following table provides a forecast of Quasar INC's (a US company) cash receipt in US dollars, Euros and Pesos for July 2017 and July 2018. Also provided are the exchange rate forecasts for euros and Pesos during the same time periods.

July 2017 July 2018

Cash Receipts Exchange Rates Cash Receipts Exchange Rates

Dollars15,000,000 N/A 18,000,000 N/A

Euros 13,000,000 $1.0815,000,000$1.15

Pesos 20,000,00 $0.0830,000,000$0.10

If the company required rate of return is 10%, estimate the value of the firm's total cash receipts as of July 2016 using the valuation model for an MNC.

2) you are able to borrow either $1,000,000 or 20mm pesos

current sport rate of the Mexican Peso $0.0510 USD/1 Mexican peso

180-day forward rate for the Mexican Peso $0.0525 USD/ 1 Mexican Peso

180-day interest rate in the US4.75% assume borrowing/lending rates are considered the same

180-day interest rate in Mexico 2.75% assume borrowing/lending rates are considered the same

NOTE: the interest rates are appropriate for the 180 day period, no need for a rate adjustment (rate *180/360)

a)using IRP, what is the expected 180 day forward rate? (MUST SHOW YOUR WORK

b) is it covered interest arbitrage possible? WHY or WHY NOT?

c)Are you going to borrow or invest in the US?

d) If covered interest arbitrage is possible, what is the profit to an investor from the US? (MUST SHOW ALL WORK)

e) In this case will covered interest arbitrage cause upward or downward pressure on the forward rate for the foreign currency (as expressed in USD/1 unit of foreign)?

MUST SHOW ALL WORK WITH PEN AND PAPER.