EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Chapter 25, Problem 6CP
Summary Introduction
(a)
To calculate:
The rate of return if an investment is made in a
Introduction:
Money market instruments:
It is an investment vehicle which allows the businesses, governments and banks to fulfil their large but short-term requirements.
Summary Introduction
(b)
To calculate:
The appropriate 90-days interest rate available on U.S. government securities
Introduction:
US government security should set the interest rate according to the dollar return otherwise it will create an arbitrage opportunity.
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Students have asked these similar questions
An Omani importer will receive commodities from USA and he has to pay an amount of USD 250,000 next month. Which of the below markets is well
suited to offer hedging protection against this transactions risk exposure?
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Suppose that the treasurer of IBM has an extra cash reserve of $100,000,000 to invest for six months. The
six-month interest rate is 12 percent per annum in the United States and 11 percent per annum in Germany.
Currently, the spot exchange rate is €1.20 per dollar and the six-month forward exchange rate is €1.18 per
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Required:
a. The maturity value in six months if the extra cash reserve is invested in the U.S.:
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.
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a. Maturity value
b. Maturity value
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Better investment
Suppose that the treasurer of IBM has an extra cash reserve of $100,000,000 to invest for six months. The six-month interest rate is 8 percent per annum in the United States and 7 percent per annum in Germany. Currently, the spot exchange rate is €1.01 per dollar and the six-month forward exchange rate is €0.99 per dollar. The treasurer of IBM does not wish to bear any exchange risk. Where should he/she invest to maximize the return?
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