FIN4802 Assignment 1 2022
Due Date: 25 May 2022
Unique number: 744477
Question 1 Preview
The market conditions are summarized as follows:
i$ = 4%; i€ = 3.5%; S = €1.01/$; F = €0.99/$
If $100,000,000 is invested in the U.S., the maturity value in six months will be
$104,000,000 = $100,000,000 (1 + .04).
Alternatively, $100,000,000 can be converted into euros and invested at the German interest
rate, with the euro maturity value sold forward. In this case the dollar maturity value will be
$105,590,909 = ($100,000,000 x 1.01) (1 + .035) (1/0.99)
Clearly, it is better to invest $100,000,000 in Germany with exchange risk hedging.
Due Date: 25 May 2022
Unique number: 744477
Question 1 Preview
The market conditions are summarized as follows:
i$ = 4%; i€ = 3.5%; S = €1.01/$; F = €0.99/$
If $100,000,000 is invested in the U.S., the maturity value in six months will be
$104,000,000 = $100,000,000 (1 + .04).
Alternatively, $100,000,000 can be converted into euros and invested at the German interest
rate, with the euro maturity value sold forward. In this case the dollar maturity value will be
$105,590,909 = ($100,000,000 x 1.01) (1 + .035) (1/0.99)
Clearly, it is better to invest $100,000,000 in Germany with exchange risk hedging.
