You are in charge of managing $10 million for one year. You are allowed to invest only in the US or German government bonds, both of which are considered risk free. The money is needed exactly one year from now in dollars, and you are not allowed to take any risks with it. The interest rates on the dollar and the German bonds are, respectively, i $ = 0.02 and i € = 0.05. The spot exchange rate is e = 0.90€/$ and the forward rate is e f = 0 .945€/$. 

What is the highest return you can expect on the $10 million?

Answer rating: 100% (QA)

To maximize the return on the 10 million investment we need to invest in the bond with the higher in... View the full answer