Use the Information for the Question(s)below

question 27

Multiple Choice

Use the information for the question(s) below.
You are a U.S.investor who is trying to calculate the present value of £5 million cash inflow that will occur one year in the future.The spot exchange rate is S = $1.8839/£ and the forward rate is F1 = $1.8862/£.The appropriate dollar discount rate for this cash flow is 5.32% and the appropriate £ discount rate is 5.24%.
-The present value of the £5 million cash inflow computed by first converting into dollars and then discounting is closest to:

• A)$8,950,495.
• B)$8,954,615.
• C)$8,943,695.
• D)$8,961,420.

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Definitions:

Exchange Rates

The rate at which one currency can be exchanged for another.

Spot Rate

The current market price used for immediate settlement of transactions involving a foreign currency.

Settlement Date

The date on which a trade is final, and the buyer must make payment and the seller deliver the asset.

Commitment Date

The date on which two parties agree upon the terms of a financial transaction or agreement, creating a commitment.