Boeing, whose global sales are generally dollar denominated, finds it has excess
ID: 2766355 • Letter: B
Question
Boeing, whose global sales are generally dollar denominated, finds it has excess cash of $55,000,000,000, which it can invest for up to three years. It has determined that its best options are either a three-year Euro-dollar ($) deposit paying 2.75% or a three-year Swiss Franc denominated deposit paying 1.55% since it expects the SF to appreciate 1.2% per annum against the dollar over the next three years. Using cash flow analysis determine the best currency option in which GE should invest. Be sure to show your complete calculations of the annual return on each investment possibility at the end of the three-year term. Assume that the annual interest amount is reinvested, i.e. compounds, at the same annual interest rate. Would your answer change if GE revised its outlook for SF to appreciate 1.3% per year? Show all calculations!!!
Explanation / Answer
Euro $ option
Investment amount = $55000(in million)
Return = 2.75%
Investment value after 3 years with compounding 2.75% = $M 59663.43
Year
Euro $ deposit
0
55000
1
56,512.50
2
58,066.59
3
59,663.43
SF $ option
Investment amount = $55000(in million) = SF55000 (in millions)
Return = 1.55%
Investment value after 3 years with compounding @1.55% = SF 59663.43 ( in millions)
In $ = 57597.34*101.23% =$58305.79 (in millions)
Year
SF $
0
55000
1
55852.5
2
56718.21375
3
57597.34606
Year
SF appreciation rate
0
1
1
1.20%
2
1.21%
3
1.23%
Hence Euro $ is better by 1357.64(59663.43-58305.79)
If appreciation is 1.3%
In $ = 57597.34*101.33% =$58363.38 (in millions)
Hence Euro $ is better by 1300.05(59663.43-58363.38)
Year
SF appreciation rate
0
1
1
1.30%
2
1.32%
3
1.33%
Year
Euro $ deposit
0
55000
1
56,512.50
2
58,066.59
3
59,663.43