Item 1

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 1.13 per dollar and the six-month forward exchange rate is 1.11 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 the nearest whole dollar.

c. Where should they invest to maximize the return?