a.

b.

c.

(Similar to Problem 1 at the end of chapter) Suppose that the treasurer of IBM has an extra cash reserve of $4.2 million invest for six months. The six-month interest rate is 7% per annum in the United States and 8% percent per annum in Germany. Currently, the spot exchange rate is 1.05 per dollar and the six-month forward exchange rate is 0.98 per dollar. If investing in the Germany for six month, how much dollar will IBM will get from this investment six month later? (if your total amount is $1.23 million, please enter 1,230,000. If your total amount is $12,456.78, please just enter 12,456.78 ) (Problem 2 at EOC) While you were visiting London, you purchased a Jaguar for 30,000, payable in three months. You have enough cash (dollar) at your bank in New York City, which pays 0.35% interest per month, compounding monthly, to pay for the car. Currently, the spot exchange rate is $1.48/ and the three-month forward exchange rate is $1.39/. In London, the money market interest rate is 2.4% for a three-month investment. There are two alternative ways of paying for your Jaguar. Option 1, if you want to keep the funds (dollar) at your bank in the U.S. bank, and buy 30,000 forward, what is the dollar cost of this option today? (e.g., if your answer is 12,345.68, round to two decimals, and enter it as 12345.67) (Problem 2 at EOC) While you were visiting London, you purchased a Jaguar for 34,000, payable in three months. You have enough cash (dollar) at your bank in New York City, which pays 0.35% interest per month, compounding monthly, to pay for the car. Currently, the spot exchange rate is $1.42/ and the three-month forward exchange rate is $1.32/. In London, the money market interest rate is 1.3% for a three-month investment. There are two alternative ways of paying for your Jaguar. Option 2: Buy a certain pound amount spot today and invest the amount in the U.K. for three months so that the maturity value becomes equal to 34,000 what is the the dollar cost of this option today? (e.g., if your answer is 12,345.68, round to two decimals, and enter it as 12345.67)