1. The current spot rate is 8.05 Norwegian kroner per U.S. dollar and expected inflation rates are 1% in Norway and 3% per annum in the U.S. What is the one-year forward (estimated spot) rate of kroner per dollar using the formula for relative purchasing power parity?
2. The ninety-day forward (estimated spot) is 1.335 U.S. dollars to the euro. Expected inflation rates are 4% in Europe and 1% per annum in the U.S. What is the current spot rate of U.S. dollars per euro using the formula for relative purchasing power parity?
Bingo Inc., a European company, is considering an expansion of their product line to Japan. The after-tax cash flows for the project are an outflow of 300 million yen at the inception of the project and inflows of 75 million yen in the next four periods with an inflow of 125 million yen in the fifth and final period. The firm's required rate of return is 12% and they are in the 40% tax bracket. The current spot rate is ¥110/€, and the expected inflation rate in Japan is 4% per year and 3% per year in Europe.
3. In yen, what is the NPV of the Bingo expansion?
4. In euros, what is the NPV of the Bingo expansion?