Suppose That You Are the Treasurer of IBM with an Extra

question 12

Multiple Choice

Suppose that you are the treasurer of IBM with an extra U.S. $1,000,000 to invest for six months. You are considering the purchase of U.S. T-bills that yield 1.810% (that's a six month rate, not an annual rate by the way) and have a maturity of 26 weeks. The spot exchange rate is $1.00 = ¥100, and the six month forward rate is $1.00 = ¥110. The interest rate in Japan (on an investment of comparable risk) is 13 percent. What is your strategy?

• A)Take $1m, invest in U.S. T-bills.
• B)Take $1m, translate into yen at the spot, invest in Japan, and repatriate your yen earnings back into dollars at the spot rate prevailing in six months.
• C)Take $1m, translate into yen at the spot, invest in Japan, hedge with a short position in the forward contract.
• D)Take $1m, translate into yen at the forward rate, invest in Japan, hedge with a short position in the spot contract.

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Definitions:

Personal Rights

The basic entitlements and freedoms that belong to every individual, safeguarding personal freedoms, dignity, and equality under the law.

Aggressive

Behavior characterized by assertiveness, boldness, or a readiness to challenge or confront, sometimes leading to conflict.

Passive

A behavior or attitude characterized by submission or a lack of active response or resistance.

General Adaptation Syndrome

A three-stage response model to stress that includes alarm, resistance, and exhaustion phases.