Euromarket investment and fund raising A U.S.-based multinational company has two subsidiaries, one in Mexico (local currency, Mexican peso, MP) and one in Japan (local currency, yen, ). Forecasts of business operations indicate the following short-term financing position for each subsidiary (in equivalent U.S. dollars): Mexico: $80 million excess cash to be invested (lent) Japan: $60 million funds to be raised (borrowed) The management gathered the following data: Currency Item US$ MP Spot exchange rates MP 11.60/US$ 108.25/US$ Forecast percent change 3.0% 1.5% Interest rates Nominal Euromarket 4.00% 6.20% 2.00% Domestic 3.75% 5.90% 2.15% Effective Euromarket _________ _________ _________ Domestic _________ _________ _________ LG 5 LG 4 842 PART SIX Special Topics in Managerial Finance Principles of Managerial Finance, Twelfth Edition, by Lawrence J. Gitman. Published by Prentice Hall. Copyright 2009 by Pearson Education, Inc. ISBN 0-558-39116-8 Determine the effective interest rates for all three currencies in both the Euromarket and the domestic market; then indicate where the funds should be invested and raised. (Note: Assume that because of local regulations, a subsidiary is not permitted to use the domestic market of any other subsidiary.)