Eurobusiness Corp. is looking for cross-border acquisition opportunities in the US. They engaged in some preliminary tal
Posted: Tue Apr 26, 2022 11:14 am
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.
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.