8. The forward-rate and spot-rate methods for discounting foreign-currency cash flows are equivalent if interest rate parity

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8. The forward-rate and spot-rate methods for discounting foreign-currency cash flows are equivalent if interest rate parity holds. Assume that interest rate parity does not hold for a specific currency because it is pegged to the dollar at a fixed exchange rate and capital flows are controlled by the monetary authorities in the country in question. Which method would apply in that case and why?

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Valuation Measuring And Managing The Value Of Companies University Edition

ISBN: 978-1118873731

6th Edition

Authors: Mckinsey & Company Inc. ,Tim Koller ,Marc Goedhart ,David Wessels

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