Question 4: This question has two parts.

Part A

Why do you think that MNCs usually enjoy lower cost of capital than purely domestic firms? Does it mean that they are less risky but more profitable than purely domestic firms? Explain.

Part B

Assuming no transaction costs, Barclays Bank quotes Australian dollar (A$) per pound sterling () = A$1.90/, Suisse Bank quotes euros () per pound sterling () = 1.53/ and ANZ quotes Australian dollar (A$) per euros () = A$1.25/, do you detect any arbitrage opportunities here? If so, how could you (i.e., which ways) take profitable advantage of these rates? And what will be your arbitrage gains, if any (use a hypothetical investment amount of Australian dollar ten million)? (Must show your workings).