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You run a pension fund in Boston and are responsible for managing $100 million. You can invest for one year in US bonds at 3% or in German bonds at 2%. The spot rate for a euro is $1.18.

a. At what forward rate will you make the same return in the US and Germany?

b. What is the forward premium with this forward rate?

c. If the forward rate is $1.22/€, where will you invest for the year and how much money will you have in dollars at the end of the year?

d. What if the forward rate is $1.17/€.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M93059068

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