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You run a pension fund in Boston and are responsible for managing $100 million.   You can...

You run a pension fund in Boston and are responsible for managing $100 million.   You can invest for one year in US bonds at 3% or in German bonds at 0.2% (not 2%). The spot rate for a euro is $1.14.

a.   At what forward rate will you make the same return in the US and Germany?

b.   What is the forward premium with this forward rate?

c.   If the forward rate is $1.15/€, where will you invest for the year and how much money will you have in dollars at the end of the year?

d.   What if the forward rate is $1.18/€.

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