4. The P & G's foreign exchange department is interested in hiring you after learning that you are taking International Finance class from Professor Kim at UC's LCB. The following information and a series of questions are presented for you to convince the company that hiring you will be definitely a positive NPV decision, i.e., the MNC's value will increase!!! As of today, spot rates of Canadian dollar (C$) and pound sterling () are, respectively, $.70 and $1.75. Also, cross exchange rate is 1 = C$2.5. In addition, one-year forward rates are C$ = $.71 and = $1.58. Finally, one-year interest rates are: U.S.= 8%, England = 9%, and Canada = 7%, respectively. Feel free to write this out on paper, in a word document or an excel file for each step and upload the document as your answer. (1) Show whether triangular arbitrage profit is feasible or not. Explain. ( 4 points) (2) For , show whether covered interest arbitrage profit (CIAP) exists. Explain. (4 points) (3) For C$, show whether covered interest arbitrage profit (CIAP) exists. Explain. (4 points) (4) Forecast the annual percentage change using the international Fisher effect in ' value. ( 4 points) (5) Using the purchasing power parity, show changes in the value of if the inflation rates in England is 6% and in the U.S.is 4%. (4 points) 4. The P & G's foreign exchange department is interested in hiring you after learning that you are taking International Finance class from Professor Kim at UC's LCB. The following information and a series of questions are presented for you to convince the company that hiring you will be definitely a positive NPV decision, i.e., the MNC's value will increase!!! As of today, spot rates of Canadian dollar (C$) and pound sterling () are, respectively, $.70 and $1.75. Also, cross exchange rate is 1 = C$2.5. In addition, one-year forward rates are C$ = $.71 and = $1.58. Finally, one-year interest rates are: U.S.= 8%, England = 9%, and Canada = 7%, respectively. Feel free to write this out on paper, in a word document or an excel file for each step and upload the document as your answer. (1) Show whether triangular arbitrage profit is feasible or not. Explain. ( 4 points) (2) For , show whether covered interest arbitrage profit (CIAP) exists. Explain. (4 points) (3) For C$, show whether covered interest arbitrage profit (CIAP) exists. Explain. (4 points) (4) Forecast the annual percentage change using the international Fisher effect in ' value. ( 4 points) (5) Using the purchasing power parity, show changes in the value of if the inflation rates in England is 6% and in the U.S.is 4%. (4 points)
