Suppose that the treasurer of IBM has an extra cash reserve of $100,000,000 to invest for six months. The six-m interest rate is 10 percent per annum in the United States and 9 percent per annum in Germany. Currently, the sp exchange rate is €1.08 per dollar and the six-month forward exchange rate is €1.06 per dollar. The treasurer of IE does not wish to bear any exchange risk. Where should they invest to maximize the return? Required: a. The maturity value in six months if the extra cash reserve is invested in the U.S.: Note: Do not round intermediate calculations. b. The maturity value in six months if the extra cash reserve is invested in Germany: Note: Do not round intermediate calculations. Round off the final answer to nearest whole dollar.
Suppose that the treasurer of IBM has an extra cash reserve of $100,000,000 to invest for six months. The six-m interest rate is 10 percent per annum in the United States and 9 percent per annum in Germany. Currently, the sp exchange rate is €1.08 per dollar and the six-month forward exchange rate is €1.06 per dollar. The treasurer of IE does not wish to bear any exchange risk. Where should they invest to maximize the return? Required: a. The maturity value in six months if the extra cash reserve is invested in the U.S.: Note: Do not round intermediate calculations. b. The maturity value in six months if the extra cash reserve is invested in Germany: Note: Do not round intermediate calculations. Round off the final answer to nearest whole dollar.
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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am. 14.
Transcribed Image Text:Suppose that the treasurer of IBM has an extra cash reserve of $100,000,000 to invest for six months. The six-month
interest rate is 10 percent per annum in the United States and 9 percent per annum in Germany. Currently, the spot
exchange rate is €1.08 per dollar and the six-month forward exchange rate is €1.06 per dollar. The treasurer of IBM
does not wish to bear any exchange risk. Where should they invest to maximize the return?
Required:
a. The maturity value in six months if the extra cash reserve is invested in the U.S.:
Note: Do not round intermediate calculations.
b. The maturity value in six months if the extra cash reserve is invested in Germany:
Note: Do not round intermediate calculations. Round off the final answer to nearest whole dollar.
c. Where should they invest to maximize the return?
a. Maturity value
b. Maturity value
c. Better investment
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