Business, 17.03.2020 02:55 wcjackie813
Carla Heinz is a portfolio manager for Deutsche Bank. She is considering two alternative investments of EUR10,000,000. Either she will invest in euro deposits or she will invest in Swiss francs (CHF) for 90 days. In the latter case, she knows that she must worry about transaction foreign exchange risk, so she has decided to fully hedge her investment. Suppose she has the following data:180-day CHF interest rate, 8% p. a., 180-day EUR interest rate, 10% p. a., spot rate EUR1.1960/CHF, 180-day forward rate, EUR1.2024/CHF. Which of these deposits provides the higher euro return in 180 days? If these were actually market prices, what would you expect to happen?
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Carla Heinz is a portfolio manager for Deutsche Bank. She is considering two alternative investments...
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