Q 3a) Why is People Bank of China(PBoC) intervention unsterilized. Explain the impact on yuan currency in the foreign exchange market and inflation. 5 marks

3b) An FDI project that is run by a subsidiary produces the following cash flows over a period of five years: -200 20 70 90 110 150

The following information is also available: Foreign tax rate 20% Domestic tax rate (full tax credit is granted) 30% Remitted cash flows allowed 75% Current exchange rate (domestic/foreign) 0.80 Expected annual depreciation of foreign currency 4.5% Discount rate 6.5%

Calculate the net present value of the project from the perspectives of the subsidiary and that of the parent company. 5 marks