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Sorry John
it is part(c) not part(b)1)-In Npv they took only income not project cost of usd 20 m.
2)-why in interest rate parity the spot rate of 128 have used instead of 116 and in purchase power parity 116 is used , why that ???
3)-didn’t understand the logic behind the 1.5 years calculation in interest rate parity.
128 × (1.108/1.022) = 138.77
128 + [(138.77 – 128)/2] = 133.38Sir john
i was considering the receivable amount and payable amount and converting currency on that basis , such as us supplier owed me a money then my technique was buy $ and sell home currency there sell futures , can i use that basis sir , i have used almost in each question and i got the answer right , but this i think so the owing amount is in currency which is same as contract size thats why making my answer little bit difficult in this question.
if you can further clarify what my technique is correct.
plus i have solved all questions but didnt get wrong except this one.
here the contract size and the amount owed is in same currency thats why i got wrong answer.heyy john sorry my bad
Forward rate = 142 × (1 + (0.085 + 0.0025) / 3) / (1 + (0.022 – 0.0030) / 3) = 145.23
why divisable by 3???
and this
It is assumed that the funds for this cost need to be borrowed, so this cost is multiplied by the borrowing rate for the total cost , its investment why borrowing rate?????
€48,601 × (1 + 0.037/3) = €49,200