Forward rate for the delivery of leu

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The corporate Treasurer for a global technology company is comparing the returns offered by U.S. Treasury bills with the returns for risk-free securities issued by the government of Romania. Both debt instruments have exactly one year to maturity. Treasury bills offer a risk-free interest rate of 1.20 percent per year. By contrast, Romanian government securities offer an interest rate of 0.60 percent per year. The spot exchange rate between the dollar and the Romanian leu is $0.2356/L1(dollars per 1 leu) while the forward rate for the delivery of leu (Romanian currency) in one year is $0.2375/L1.

Determine whether the portfolio manager should invest in U.S. T-bills or Romanian government securities.

Reference no: EM132494485

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