Suppose that you are the treasurer of IBM with an extra U.S. $1,000,000 to invest for...

 

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Suppose that you are the treasurer of IBM with an extra U.S. $1,000,000 to invest for six months. You are considering the purchase of U.S. T-bills that yield 1.810 percent (that's a six month rate, not an annual rate by the way) and have a maturity of 26 weeks. The spot exchange rate is $1.00 = 100, and the six month forward rate is $1.00 = 110. The interest rate in Japan (on an investment of comparable risk) is 13 percent. What is your strategy? Suppose that you are the treasurer of IBM with an extra U.S. $1,000,000 to invest for six months. You are considering the purchase of U.S. T-bills that yield 1.810 percent (that's a six month rate, not an annual rate by the way) and have a maturity of 26 weeks. The spot exchange rate is $1.00 = 100, and the six month forward rate is $1.00 = 110. The interest rate in Japan (on an investment of comparable risk) is 13 percent. What is your strategy?

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To determine the strategy for investing the extra US 1000000 we need to compare the returns from inv... View the full answer