What is interest rate parity? Currently, you can exchange $1$ euro for $1\mathrm{.}25$ dollars in the $180-$day forward market, and the risk$-$free rate on $180-$day securities is $6\%$ in the United States and $4\%$ in France. Does interest rate parity hold? If not, which securities offer the highest expected return?

What is purchasing power parity? If a package of jerky costs $$2$ in the United States and purchasing power parity holds, what should be the price of the jerky package in France?

What effect does relative inflation have on interest rates and exchange rates?

Briefly discuss the international capital markets.

To what extent do average capital structures vary across different countries?

Briefly describe a company$$s risk exposure if it invests in an international project.

Describe the process for evaluating a foreign project. Now consider the following project: A U$.$S$.$ company has the opportunity to lease a manufacturing facility in Japan for $2$ years. The company must spend $1$ billion initially to refurbish the plant. The expected net cash flows from the plant for the next $2$ years, in millions, are

and

$.$ A similar project in the United States would have a risk$-$adjusted cost of capital of $10\%.$ In the United States, a $1-$year government bond pays $2\%$ interest, and a $2-$year bond pays $2\mathrm{.}8\%.$ In Japan, a $1-$year bond pays $0\mathrm{.}05\%,$ and a $2-$year bond pays $0\mathrm{.}26\%.$ What is the project$$s NPV$?$

Briefly discuss special factors associated with the following areas of multinational working capital management:

$(1)$

Cash management

$(2)$

Credit management

$(3)$

Inventory management