Q1. Suppose that the annual interest rate is 4.

s 4.0 percent in the United States and 3 percent in Norway, and

that the spot exchange rate is $1.61/€ and the forward exchange rate, with one-year maturity, is $1.63/€.
Assume that an arbitrager can borrow up to $50,000 or €31,056. If an astute trader finds an arbitrage, what is
the profit in one year?

Q2. BIDV offers the bid and ask value of a Singapore Dollar (S$) in USD are $0.680 and $0.690. MB
Bank offers the bid and ask value of a Yen in USD are $0.072 and $0.076. VCB offers the bid and ask value
of a S$ in Yen are 8.2 and 8.3. Assume you have $10,000 to conduct triangular arbitrage. What is your profit
in USD from implementing this strateg.

Q3. Vingroup, Inc., just constructed a manufacturing plant in Korea. The construction cost 13 billion Korean
Won. Vingroup intends to leave the plant open for 5 years. During the 5 years of operation, Korean after-tax.
Won cash flows are expected to be 6 billion Won, 2 billion Won, and 2 billion Won, 4 billion Won, 1 billion
Won, respectively. Operating cash flows will begin 1 year from today and are remitted back to the parent at
the end of each year. At the end of the 5th year, Vingroup expects to sell the plant for 3 billion Won. The
withholding tax in Korea is 20%.
a. Vingroup borrows U.S. funds at an interest rate of 8 percent per year. The long-term risk-free rate in the
United States is 3 percent. The stock market return in the United States is expected to be 12 percent
annually. Vingroup’s beta is 0.4. Its target capital structure is 40 percent debt and 60 percent equity. The
corporate tax rate in US is 30 percent. Estimate the cost of capital to Vingroup
b.It currently takes 1200 Won to buy 1 U.S. dollar, and the Won is expected to depreciate by 5% per year
Determine the NPV for this project. Should Vingroup build the plant?
c. It currently takes 1200 Won to buy 1 U.S. dollar, and the Won is expected to appreciate by 5% per year.
Should Vingroup build the plant?
d. It currently takes 1200 Won to buy 1 U.S. dollar, and the Won is expected to remain constant during the
project life. Should Vingroup build the plant?

Q4. A project in Japan requires an initial investment of 2 billion Yen. Yen cash flows are expected to be 6
billion Yen, 2 billion Yen, 2 billion yen, 4 billion yen, and 1 billion yen. The project has no salvage value.
a. The current value of the won is 110 yen per U.S. dollar, and the value of the yen is expected to remain
constant over the next 5 years. What is the NPV of this project if the required rate of return is 13 percent?
b. The current value of the won is 110 yen per U.S. dollar .Repeat the question, except assume that the yen is
expected to appreciate by 3% per year. What is the NPV of this project if the required rate of return is 13
percent
c. The current value of the won is 110 yen per U.S. dollar. Repeat the question, except assume that the yen is
expected to depreciate by 3% per year. What is the NPV of this project if the required rate of return is 13
percent?