Carla Heinz is a portfolio manager for Deutsche Bank. She is considering two alternative investments of EUR10,000,000:

Question:

Carla Heinz is a manager for Deutsche Bank. She is considering two alternative investments of EUR10,000,000: 180-day euro deposits or 180-day Swiss franc (CHF) deposits. She has decided not to bear transaction foreign exchange risk. Suppose she has the following data: 180- day CHF interest rate of 8% p.a.; 180-day EUR interest rate of 10% p.a.; spot rate of EUR1.1960/CHF; and 180-day forward rate of EUR1.2024/CHF. Which of these deposits provides the higher euro return in 180 days? If these were actually market prices, what would you expect to happen?

Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...