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Problem 6 . 1 Suppose that the treasurer of IBM has an extra cash reserve of $ 1 0 0 , 0 0 0 ,

Problem 6.1
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 8
percent per annum in the United States and 7 percent per annum in Germany. Currently, the spot exchange rate is 1.06 per dollar and
the six-month forward exchange rate is 1.04 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?
Answer is complete but not entirely correct.
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