You are a U.S. investor who is trying to calculate the present value of a(n)

11

million cash inflow that will occur one year in the future. The spot exchange rate is

S=$1.124/

and the forward rate is

F1=$1.103/.

You estimate that the appropriate dollar discount rate for this cash flow is

6%

and the appropriate euro discount rate is

8%.

a. What is the present value of the

11

million cash inflow computed by first discounting the euro and then converting it into dollars?b. What is the present value of the

11

million cash inflow computed by first converting the cash flow into dollars and then discounting it?c. What can you conclude about whether these markets are internationally integrated, based on your answers to

(a)

and

(b)?

Question content area bottom

Part 1

a. What is the present value of the

11

million cash inflow computed by first discounting the euro and then converting it into dollars?The present value of the

11

million cash inflow is

$enter your response here

million.(Round to two decimal places.)

Part 2

b. What is the present value of the

11

million cash inflow computed by first converting the cash flow into dollars and then discounting it?The present value of the

11

million cash inflow is

$enter your response here

million.(Round to two decimal places.)

Part 3

c. What can you conclude about whether these markets are internationally integrated, based on your answers to

(a)

and

(b)?

(Select the best choice below.)

A.Yes, the markets are internationally integrated because the answers to

(a)

and

(b)

are essentially the same.

B.Yes, the markets are internationally integrated because the answers to

(a)

and

(b)

are very different.

C.No, the markets are not internationally integrated because the answers to

(a)

and

(b)

are very different.

D.No, the markets are not internationally integrated because the answers to

(a)

and

(b)

are essentially the same.