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Google, whose global sales are generally dollar denominated, finds it has excess cash of $8,500,000,000, which it can invest for up to three years. It has determined that its best options are either a three-year Euro-dollar ($) deposit paying 2.85% or a three-year yen denominated deposit paying 1.75% since it expects the yen to appreciate 1.05% per annum against the dollar over the next three years. Using cash flow analysis determines the best currency option in which Google should invest. Be sure to show your complete calculations of the annual return on each investment at the end of the three-year term. Assume that the annual interest amount is reinvested, i.e. compounds, at the same annual interest rate. Would your answer change if Google revised its outlook for the yen to appreciate 1.3% per year?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M954415

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