How might thetreasurer of a multinational firm use the interest rate parity concept (a) when deciding howto invest the firm’s surplus cash and (b) whendeciding where to borrow funds on a short-termbasis?

How might thetreasurer of a multinational firm use the interest rate parity concept (a) when deciding howto invest the firm’s surplus cash and (b) whendeciding where to borrow funds on a short-termbasis?

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter20: Short-term Financing

Section: Chapter Questions

Problem 9QA

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Question

How might the
treasurer of a multinational firm use the interest rate parity concept (a) when deciding how
to invest the firm’s surplus cash and (b) when
deciding where to borrow funds on a short-term
basis?

Expert Solution

Step 1

Interest rate parity is a concept in which there are different interest rates in two countries and the investors are not bothered about it since, this doesn’t create any difference in the value of their investment.

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