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Questions: What did Roger mean when he said that, based on covered interest arbitrage, it made no difference whether Siemens Technologies raised the capital needed
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- What did Roger mean when he said that, based on covered interest arbitrage, it made no difference whether Siemens Technologies raised the capital needed for the joint venture in India or in the United States? Do you agree? Explain.
- Based on the differential inflation rate projections, what are the expected end of year exchange rates between the U.S dollar and the Indian rupee for the next seven years?
- Based on the "home currency" approach, what should Hal recommend?
- As Hal went over the numbers once again, he realized that he had made a major error. One of the machines, which were to be shipped over to India as part of Siemens Technologies' initial investment, had been accounted for at its book value of $500,000, even though it had an estimated market value of $700,000. The machine could be depreciated on a straight-line basis over seven years. What effect would this error have on Hal's analysis and recommendation?
- As Hal was inquiring about the tax provisions in India, he was told that there was a high probability that the Indian government would offer a reduced tax rate (20%) to foreign investors who used some indigenous raw materials and employed Indians. If this does happen, how would the analysis be affected?
- How would Hal's analysis and recommendation change if Siemens Technologies intends to use this joint venture as a stepping-stone to maintain a permanent position in India and therefore reinvests its earnings in India?
- Besides exchange rate fluctuations, what other risk factors would Hal have to take into consideration before making his recommendation?
- What are the different ways in which Siemens's share of the cash flows from the joint venture can be remitted to the United States?
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