Part 1

You are considering a project in Poland which has an initial cost of 250000PLN. The project is expected to return a onetime payment of 400000PLN 5 years from now. The risk free rate of return is 3 percent in the U.S and 4 percent in Poland. The inflation rate is 2 percent in the U.S. and 5 percent in Poland. Currently, you can buy 3.75PLN for 1.00USD. How much will the payment 5 years from now be worth in U.S. dollars?

Part 2

Suppose that the spot rate on the Canadian dollar is C$1.18. The risk free nominal rate in the U.S. is 5 percent while it is only 4 percent in Canada. What is the three year forward rates using the approximate interest rate parity condition?