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Mia Caruso Enterprises, a U.S. manufacturer of children's toys, has made a sale in India and is expecting a 406 million rupee cash inflow in one year. (The currency of India is the? rupee.) The current spot rate is S=$0.023/rupee and the one-year forward rate is F1=$0.0218/rupee.
a. What is the present value of Mia Caruso's 406 million rupee inflow computed by first discounting the cash flow at the appropriate India rupee discount rate of 11% and then converting the result into dollars?
b. What is the present value of the 406 million rupee cash inflow computed by first converting the cash flow into dollars and then discounting it at the appropriate dollar discount rate of 5%?
c. What can you conclude about whether these markets are internationally integrated, based on your answers to (a) and (b)?
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