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a. Is the interest rate parity holding? You may ignore transaction costs. O Yes Ο NO

a. Is the interest rate parity holding? You may ignore transaction costs. O Yes Ο NO

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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James Clark is a currency trader with Wachovia. He notices the following quotes: Spot exchange rate Six-month forward exchange rate Dollar interest rate Swiss franc interest rate a. Is the interest rate parity holding? You may ignore transaction costs. Yes Ο NO SFrl.2066/$ SFr1.1937/$ 2.50% per year 2.00% per year Suppose that the treasurer of IBM has an extra cash reserve of $100,000,000 to invest for six months. The interest rate is 8 percent per annum in the United States and 7 percent per annum in Germany. Currently, the spot exchange rate is €1.06 per dollar and the six-month forward exchange rate is €1.04 per dollar. The treasurer of IBM does not wish to bear any exchange risk. Where should he or she invest to maximize the return? Better investment
Transcribed Image Text:James Clark is a currency trader with Wachovia. He notices the following quotes: Spot exchange rate Six-month forward exchange rate Dollar interest rate Swiss franc interest rate a. Is the interest rate parity holding? You may ignore transaction costs. Yes Ο NO SFrl.2066/$ SFr1.1937/$ 2.50% per year 2.00% per year Suppose that the treasurer of IBM has an extra cash reserve of $100,000,000 to invest for six months. The interest rate is 8 percent per annum in the United States and 7 percent per annum in Germany. Currently, the spot exchange rate is €1.06 per dollar and the six-month forward exchange rate is €1.04 per dollar. The treasurer of IBM does not wish to bear any exchange risk. Where should he or she invest to maximize the return? Better investment
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