Question

1. Perth International Co., an Australian multinational company, forecasts 66 million Australian dollars (A$) earnings next year (i.e., year-one). It expects 52 million Chinese yuan (CNY), 49 million Indian rupees (INR) and 35 million Malaysian ringgit (MYR) proceeds of its three subsidiaries in year-one. It also forecasts the year-one exchange rates A$0.3274/CNY, A$0.0441/INR and A$0.6657/MYR.

            Calculate the total Australian dollar (A$) cash flow for year-one.

            The answer for this question is $108485200

2. Perth International anticipates a 5.55 per cent increase in the year-one income of its subsidiaries in year-two. It has information that the current 5.63 per cent, 8.27 per cent, 13.90 per cent and 11.71 per cent nominal interest rate in Australia, China, India and Malaysia, respectively, will remain the same in the next three years. Due to foreign currency higher nominal interest rate, subsidiaries will invest 20 per cent, 55 per cent and 36 per cent of their year-two earnings in China, India and Malaysia, respectively, for next year. Subsidiaries will remit their remaining incomes (i.e., after investment) to the Australian parent. Perth International believes in the International Fisher Effects with considering a 2.69 per cent real interest in Australia, China, India and Malaysia to calculate the expected foreign currency value against the Australian dollar for year-two based on the year-one exchange rates A$/CNY, A$/INR, and A$/MYR.

What is the total Australian dollar (A$) cash flow for year-two? (Enter the whole number with no sign or symbol)

3. In year-three, Perth International has a plan to expand the business in China, India and Malaysia. Consequently, it forecasts an 9.97 per cent increase in year-one earnings of its subsidiaries in year-three. Perth International anticipates 3.64 per cent, 7.70 per cent, 11.47 per cent and 9.44 per cent inflation in Australia, China, Indian and Malaysia, respectively, in year-three. It considers the Purchasing power parity to calculate the value of CNY, INR and MYR against the Australian dollar in year-three using the year-two exchange rates A$/CNY, A$/INR, and A$/MYR.

What is the total Australian dollar (A$) cash flow for year-three? (enter the whole number with no sign or symbol)

PLEASE PROVIDE NUMBERS AS WHOLE NOT AFTER ROUNDING THEM IN MILLIONS. I NEED NUMBERS IN FIGURES LIKE FOR EXAMPLE $120254126

Answer 1

Part 1:

Statement showing total cashflow for year one:

Subsidiaries	Conversion Rate	Calculation	Amount Australian
52 million Chinese yuan (CNY)	A$0.3274/CNY	52 Million CNY x A$0.3274	$     1,70,24,800.00
49 million Indian rupees (INR)	A$0.0441/INR	49 Million INR x A$0.0441	$       21,60,900.00
35 million Malaysian ringgit (MYR)	A$0.6657/MYR	35 Million MYR x A$0.6657	$     2,32,99,500.00
Holding Company - 1. Perth International			$     6,60,00,000.00
Total Cash Flow			$   10,84,85,200.00

Part 2:

Year 2 income of each subsidairies:

Subsidiaries	Year 2 Income @5.55% Increased
Chinese	54886000 CNY
Indian	51719500 INR
Malaysian	36942500 MYR

INTERNATIONAL FISHER EFFECT (IFE): It analyses the relationship between the Interest Rates and the Expected Inflation. As per IFE we have,

(1+ Money or Nominal Interest Rate) = (1+ Real Interest Rate) (1+ Inflation Rate)

Nominal Interest rates are 5.63 per cent, 8.27 per cent, 13.90 per cent and 11.71 per cent in Australia, China, India and Malaysia, respectively.

Australia	(1+0.0563)=(1+Real Interest Rate) (1+0.0269)
	Real Interest Rate =	2.86%
China	(1+0.0827)=(1+Real Interest Rate) (1+0.0269)
	Real Interest Rate =	5.43%
India	(1+0.139)=(1+Real Interest Rate) (1+0.0269)
	Real Interest Rate =	10.92%
Malaysia	(1+0.1171)=(1+Real Interest Rate) (1+0.0269)
	Real Interest Rate =	8.78%

Using INTEREST RATE PARITY THEORY (IRPT): IRPT states that exchange rate between currencies is directly affected by their Interest Rate:

Forward Rate = Spot Rate x (1 + Domestic Interest Rate) / (1 + Foreign Interest Rate)

	Spot rate (Forcast for Year 1)	Domestic Interest Rate	Foreign Interest Rate	Forward Rate
China	A$0.3274/CNY	2.86%	5.43%	0.3194
India	A$0.0441/INR	2.86%	10.92%	0.0409
Malaysia	A$0.6657/MYR	2.86%	8.78%	0.6295

Based on forward rate and remittance rate given, below statement showing total cash flow from Subsidairies:

Subsidiaries	Year 2 Income @5.55% Increased	Invest	Remittance	Forward Rate	Amount Australian
Chinese	54886000 CNY	20%	43908800	0.3194	$     1,40,25,312.83
Indian	51719500 INR	55%	23273775	0.0409	$         9,51,792.07
Malaysian	36942500 MYR	36%	23643200	0.6295	$     1,48,82,718.88
Total Remittance from Subsidairies				$     2,98,59,823.77

Part 3

Using PURCHASING POWER PARITY THEORY (PPPT): PPPT states that exchange rate between currencies is directly affected by their Interest Rate:

Forward Rate = Spot Rate x (1 + Domestic Inflation Rate) / (1 + Foreign Inflation Rate)

	Spot rate (Forecast for Year 1)	Domestic Interest Rate	Foreign Interest Rate	Forward Rate
China	A$0.3194/CNY	3.64%	7.70%	0.3074
India	A$0.0409/INR	3.64%	11.47%	0.0380
Malaysia	A$0.6295/MYR	3.64%	9.44%	0.5961

Statement showing cashflow for year 3

Subsidiaries	Year 1 Cashflow	Year 2 (expansion)	Year 3 Forcast Increase	Total CashFlow	Forward Rate	CashFlow Australian $
Chinese	52 million CNY	20%	9.97%	68621280 CNY	0.3074	2,10,91,401
Indian	49 million INR	55%	9.97%	88635820 INR	0.0380	33,70,559
Malaysian	35 million MYR	36%	9.97%	77770784 MYR	0.5961	4,63,62,146
Total Cash flow from Subsidiaries				7,08,24,106