Eurobusiness Corp. is looking for cross-border acquisition opportunities in the US. They engaged in some preliminary tal

[answerhappygod]

Eurobusiness Corp. is looking for cross-border acquisition
opportunities in the US. They engaged in some preliminary talks
with City Circuit Ltd., bidding USD 900 M in cash, payable in 6
months.



Eurobusiness has enough cash sitting in Andorra, which pays 0,1%
interest per month, to close the deal. Currently, the spot exchange
rate is € 0,91/USD and the six-month forward exchange rate is €
0,915/USD.


In New
York, the money market interest rate is 0,5% for a six-month
investment.


How would
you settle the deal?







a. Keep the funds in Andorra
and buy USD 900 M forward.







b. Buy a certain USD amount spot
today and invest the amount in the US for six months so that the
maturity value becomes equal to USD 900 M.