This document summarizes 8 problems related to international financial management. It discusses spot and forward exchange rates, premiums and discounts, and uses exchange rates to calculate net present values of investments in different countries while accounting for inflation rates and interest rates in each country. It also provides an example of using forward contracts to hedge foreign exchange risk on a receivable.

1. Ch 34: International Financial Management
CHAPTER 34
INTERNATIONAL FINANCIAL MANAGEMENT
Problem 1
Spot rate, Pound/Dollar 1.5763 0.6344
90-day forward rate 1.5436 0.6478
Forward dollar premium:
[(1.5763 - 1.5436)/1.5436]/(360/90) 8.5%
Forward pound discount:
[(0.6478 - 0.6344)/0.6344]/(360/90) 8.5%
Problem 2
Current spot, INR/$ 40.85
60-day forward rate, INR/$ 38.95
Forward INR premium: [{(40.85/38.95) - 1}/(360/60)] 29.3%
Problem 3
1-year INR interest rate 15%
1-year $ interest rate 10%
Spot rate, INR/$ 39.8
Forward rate, INR/$: [(1.15/1.10) x 39.80] 41.61
Invest in India for 1Yr at 15% 10,000,000
Receive after one year 11,500,000
Borrow $ at current spot rate: [10,000,000/39.8] 251,256
Invest in US for one year : [251,256 x 1.10] 276,382
and obtain INR: [276,382 x 41.61] 11,500,000
Problem 4
Expected inflation in France 5%
Expected inflation in Italy 7%
1-year interest rate in France 8.0%
1-year interest rate in Italy: [8% x (1.07/1.05)] 8.15%
Problem 5
1-year forward rate, B/$ 46.75
Expected baht inflation rate 9%
Expected $ inflation rate 4%
Current spot rate, B/$: [46.75 x (1.04/1.09)] 44.61
Problem 6
Expected INR inflation rate 5%
Current spot rate, Won/INR 1.2345
1-year forward rate, Won/INR 1.2567
Expected Won inflation rate: [{(1.2567/1.2345) x 1.05} - 1] 6.9%
Problem 7

2. I. M. Pandey, Financial Management, 9th Edition, New Delhi: Vikas.
Yen/FF exchange rate 105.2
INR/FF exchange rate 6.5
Yen/INR exchange rate: [105.2/6.5] 16.18
Problem 8
3 month $ (million) receivable by Thai Co. 5.00
Current spot rate, B/$ 43.75
3-month forward rate, B/$ 45.35
Spot rate at the time money is received 44.10
Total amount, no coverage, B million: [5 x 44.10] 220.50
Total amount, partial coverage, B million:
[0.6 x 5 x 45.35 + 0.4 x 5 x 44.1 224.25
Total amount, full cover, B million: [5 x 45.35] 226.75
Cost of forward contract, full cover:
[(45.35 - 44.10)/44.10](360/90) 11.3%
Problem 9
Thailand India
Risk-premium 7.25% 7.25%
Risk-free interest rate 12% 10%
Expected inflation rate 8%
Opportunity cost of capital 19.38% 17.25%
Current exchange rate 1.105 0.905
Investment (baht, million) 25
Project life (years) 12
Annual real cash flows (baht, million) 4
Expected PVF @ PV Spot rate NCF PVF @ PV
Year NCF (baht) 19.38% (baht) INR/baht (INR) 17.25% (INR)
0 -25.00 1.000 -25.00 0.9050 -22.63 1.000 -22.63
1 4.00 0.838 3.35 0.8888 3.56 0.853 3.03
2 4.32 0.702 3.03 0.8730 3.77 0.727 2.74
3 4.67 0.588 2.74 0.8574 4.00 0.620 2.48
4 5.04 0.492 2.48 0.8421 4.24 0.529 2.25
5 5.44 0.412 2.24 0.8270 4.50 0.451 2.03
6 5.88 0.345 2.03 0.8123 4.77 0.385 1.84
7 6.35 0.289 1.84 0.7978 5.06 0.328 1.66
8 6.86 0.242 1.66 0.7835 5.37 0.280 1.50
9 7.40 0.203 1.50 0.7695 5.70 0.239 1.36
10 8.00 0.170 1.36 0.7558 6.04 0.204 1.23
11 8.64 0.142 1.23 0.7423 6.41 0.174 1.11
12 9.33 0.119 1.11 0.7290 6.80 0.148 1.01
NPV -0.42 -0.38
IRR 19.0% 16.9%