What is the future value in year twelve of an ordinary annuity ...

[lak]

What is the future value in year twelve of an ordinary annuity cash flow of 6,000 per year at an interest rate of 4.00 per year?
 
  A) 90,154.83
  B) 93,761.02
  C) 28,675.97
  D) 32,117.08

Question 2

Describe exchange rate risk in direct foreign investment.
 
  What will be an ideal response?

[lkoler]

Answer to Question 1

Answer: A
Explanation: A)
FV = PMT  = 6,000  = 90,154.83.
MODE = END
INPUT 12 4 0 -6,000 ?
KEY N I/Y PV PMT FV
CPT 90,154.83

Answer to Question 2

In a direct foreign investment (DFI), the parent company invests in assets denominated in a foreign currency. That is,
the balance sheet and the income statement of the subsidiary are written in terms of the foreign currency. The parent
company, if based in the United States, receives the repatriated (or converted) profit stream from the subsidiary in
dollars. Thus, the exchange rate risk concept applies to fluctuations in the dollar value of the assets located abroad as
well as to the fluctuations in the home currencyNdenominate d profit stream. Moreover, exchange risk not only affects
immediate profits but may affect the future profit stream as well. Although exchange rate risk can be a serious
complication in international business activity, remember the principle of the risk-return trade-off: Traders and
corporations find numerous reasons why the returns from international transactions outweigh the risks.