Mamma Mia Enterprises, a Canadian manufacturer of children’s toys, has made a sale in Poland and is expecting a 4 million PLN cash inflow in one year. The current spot rate is 2.040 PLN/ CAD and the one-year forward rate is 2.055 PLN/ CAD.
a. What is the present value of Mamma Mia’s 4 million PLN inflow computed by first discounting the cash flow at the appropriate PLN of 10% and then converting the result into CAD?
b. What is the present value of Mamma Mia’s 4 million PLN inflow computed by first converting the cash flow into CAD and then discounting at the appropriate CAD of 6%?
c. What can you conclude about whether these markets are internationally integrated, based on your answers to parts (a) and (b)?
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