Textbook Problem

If the eastern branch and the western branch worked together, the eastern branch could loan its $15 million to the western branch. Nevertheless, one could argue that the branches could not take advantage of interest rate differentials or expected exchange rate effects among currencies. Given the data provided in this example, would you recommend that the two branches make their short-term investment and financing decisions independently, or should the eastern branch lend its excess cash to the western branch? Explain.