A Canadian fiRm Is Considering Purchasing a Subsidiary in Great

question 360

Multiple Choice

A Canadian firm is considering purchasing a subsidiary in Great Britain. The subsidiary will cost £16 million and will generate cash inflows of £7.6 million per year at the end of each of the next three
Years. After that, the company will be worthless. The current exchange rate is £0.83 British pounds
Per $1. The Canadian inflation rate is expected to be 4% over this period. The current risk-free rate
Of interest in Canada is 5% and the risk-free rate in Great Britain is 8%.[LINE][LINE]If uncovered
Interest parity holds, what is the expected spot rate two years from now?

• A) 0.830
• B) 0.855
• C) 0.863
• D) 0.881
• E) 0.907

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Definitions:

Joint Preparation

The process of preparing the edges of material pieces that are to be joined together, often by welding, to ensure a strong and clean join.

Root Reinforcement

A reinforcement technique used to strengthen the area near the root of a weld, ensuring enhanced durability and support.

Melt-Through Symbol

A welding symbol used to indicate where complete joint penetration is required in a weld, ensuring that the weld metal fully penetrates the joint.

Bevel-Groove

A type of weld preparation where the edges of the parts to be joined are cut at an angle to accommodate a filler material.