Suppose that the treasurer of IBM has an extra cash reserve of $100,000,000 to invest for six months. The 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 per dollar and the six- month forward exchange rate is €1.09 per dollar. The treasurer of IBM does not wish to bear any exchange risk. Where should he or she invest to maximize the return? Better investment
Suppose that the treasurer of IBM has an extra cash reserve of $100,000,000 to invest for six months. The 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 per dollar and the six- month forward exchange rate is €1.09 per dollar. The treasurer of IBM does not wish to bear any exchange risk. Where should he or she invest to maximize the return? Better investment
Chapter22: International Financial Management
Section: Chapter Questions
Problem 2P
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