You are a U.S. investor trying to calculate the present value of a 15€ million cash inflow that will occur one year in the future. The spot exchange rate is Upper S = $ 1.272/€?, and the forward rate is Upper F=$1.308/€. You estimate that the appropriate dollar discount rate for this cash flow is 8% and the appropriate euro discount rate is 5%.
a. What is the present value of the €15 million cash inflow computed by first discounting the euro and then converting it into? dollars?
b. What is the present value of the €15 million cash inflow computed by first converting the cash flow into dollars and then discounting? it?
c. What can you conclude about whether these markets are internationally? integrated, based on your answers to (a?) and ?(b?)?