INTERNATIONAL FINANCE

QUESTIONS :

1.

Petrus Company has a unique opportunity to invest in a two-year project in Australia. The project is expected to generate 1,000,000 Australian dollars (A$) in the first year and 2,000,000 Australian dollars in the second. Petrus would have to invest $1,500,000 in the project. Petrus has determined that the cost of capital for similar projects is 14%. What is the net present value of this project if the spot rate of the Australian dollar for the two years is forecasted to be $.55 and $.60, respectively?
a. $2,905,817.
b. -$94,183.
c. $916,128.
d. none of the above.

2.

Microsoft has excess cash of $10,000,000,000, which it can invest for three years. 

It can either go for a three-year dollar deposit paying 3.2% or a three-year yen

deposit paying 2% since it expects the yen to appreciate 1% per annum

against the dollar in the next three years.Which option is best to

invest. Show your complete calculations

of the return at the end of the three-year. Assume that the

annual interest amount is reinvested, i.e. compounds, at the same annual interest rate.

Would your answer change if outlook for the yen to appreciate 1.5% per

year?