Suppose the CFO of a German corporation with surplus cash flow has 1 million Euros to invest. Suppose that interest rates on 1-year CD deposits in US banks are 2%, while rates on 1year CD deposits denominated in euros in German banks are currently 4.5%. Suppose further that the CFO expects that the (euro/$) exchange rate will increase from 1euro per $ to 1.1 euros per $ during the coming year. Should the CFO invest in CD's denominated in dollars or in euros? Show your work to substantiate your response as credible.© BrainMass Inc. brainmass.com October 10, 2019, 4:36 am ad1c9bdddf
Case I - Deposit made in US dollars
Amount deposited in US=1 million Euros=1*1 =$1 M
FV of deposit after ...
Solution determines whether CFO should invest in CD's denominated in dollars or Euros.