Question
Suppose that the treasurer of IBM has an extra cash reserve of $3,000,000 to invest for six months. The six-month interest rate is 8% per
Suppose that the treasurer of IBM has an extra cash reserve of $3,000,000 to invest for six months. The six-month interest rate is 8% per annum in the U.S. and 6% per annum in Germany. Currently, the spot exchange rate
is DM1.60 per dollar and the six-month forward exchange rate is DM1.56 per dollar. The treasurer of IBM does not wish to bear any exchange risk. Where should he/she invest to maximize the return?
1. | Invest in US and receive a future value of $3120000 in six months | |
2. | Invest in Germany and receive future value of $3169230.77 in six months | |
3. | Invest in US and receive 3195342 in six months | |
4. | Invest in Germany and recieve $319892.34 in six months |
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