Suppose that Audi AG has two main subsidiaries, one in India (local currency is Indian rupee, INR) and one in Indonesia (local currency is Indonesian rupiah, IDR). Forecasts of business operations indicate the following short-term financing position for each subsidiary (in equivalent euros):

India: €50 million excess cash to be invested (lent)

Indonesia: €35 million funds to be raised (borrowed)

The management of Audi gathered the following data.

Determine the effective interest rates for all three currencies in both the Euromarket and the domestic market, and then indicate where the funds should be invested and raised. 

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Item Spot exchange rates Forecast percent change Interest rates Nominal Euromarket Domestic Effective Euromarket Domestic EUR 1.00% 0.75% Currency INR 76.329 (INR/) -2.5% 7.50% 7.25% IDR 16,164.39 (IDR/) +4.0% 9.25% 9.65%