Use the Information for the Question(s)below

question 69

Multiple Choice

Use the information for the question(s) below.
You are a Canadian investor who is trying to calculate the present value (PV) of a 15 million British pound cash inflow that will occur one year from now.The spot exchange rate is 1.5742 CAD/GBP and the forward rate is F₁ = 1.5682 CAD/GBP.The appropriate dollar discount rate for this cash flow is 1.05% and the appropriate British pound discount rate is 1.45%.
-What is the present value of the dollar cash inflow computed by first converting the pounds into dollars and then discounting the dollars?

• A)$23,275,505
• B)$23,186,792
• C)$23,367,640
• D)$23,278,575
• E)$23,310,005

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Definitions:

Forward Exchange Rates

Exchange rates at which two parties agree to exchange currencies at a future date.

Interest Rate Parity

A theory which states that the difference in interest rates between two countries is equal to the difference between the forward exchange rate and the spot exchange rate.