ACCA Strategic Professional · Advanced Financial Management · International investment and financing decisions
Kestrel Inc, a US company, has a project in Poland. Its US dollar discount rate is 9%. Expected inflation is 5% in the US and 3% in Poland (Polish zloty cash flows). What zloty discount rate should be used for zloty cash flows, to the nearest 0.1%?
The zloty rate equals 1.09 multiplied by 1.03/1.05, minus one, giving about 6.9%. This value does not appear among the listed options, so the item is flawed.
- A7.1%Correct
- B11.1%
- C9.0%
- D5.0%
Explanation
PLN rate = 1.09 x (1.03/1.05) - 1 = 1.09 x 0.98095 - 1 = 1.06924 - 1 = 6.9%. Correct value 6.9%.
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