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QUESTION 21 Which of the following statements is/are correct?[ Interest rate parity exists when the interest rate differential between two countries is exactly equal to
QUESTION 21 Which of the following statements is/are correct?[ Interest rate parity exists when the interest rate differential between two countries is exactly equal to the forward discount or premium on the two countries' currencies [] When interest rate parity exists, interest rate differential between countries will be offset by the cost of covering currency risk in the forward market. [111] When interest rate parity holds, currency markets are in equilibrium, and capital funds will not flow since no profit is earned on international investments. Il and I1 O I, II, II O Only III QUESTION 31 Chen Transport, a U.S. based company, is considering expanding its operations into the West African country of Ghana. The required investment at Time = 0 is $10 million. The firm forecasts total cash inflows of $4 million per year for 2 years, $6 million for the next 2 years, and then a possible terminal value of $8 million. In addition, due to political risk factors, Chen believes that there is a 50% chance that the gross terminal value will be only $2 million and a 50% chance that it will be $8 million. However the government of the host country will block 20% of all cash flows. Thus, cash flows that can be repatriated are 80% of those projected. Chen's cost of capital is 15%, but it adds one percentage point to all foreign projects to account for exchange rate risk. Under these conditions, what is the project's NPV? $1.01 million $2.77 million $5.96 million O$7.39 million
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