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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
Suppose that the treasurer of IBM has an extra cash reserve of $ to invest for six months. The sixmonth interest rate is
percent per annum in the United States and percent per annum in Germany. Currently, the spot exchange rate is per dollar and
the sixmonth forward exchange rate is 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 US:
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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