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Suppose a cash manager has an investment horizon of one-year. She has the choice of investing in either commercial paper with a maturity of six-months or commercial paper with a maturity of one-year. If she pursues the former, she will roll over her investment in six months to another six-month instrument. The current rates are 5% annually on the six-month commercial paper and 5.5% for the one-year maturity commercial paper. If in six months, the yield for six-month commercial paper is 5.2% annually, should she invest in the two six-month instruments or the one-year commercial paper? Also assume that she can utilize this strategy in either Country A or Country B. If Country A has a savings deficit and Country B has a savings surplus, which country should she invest in if she is using a savings-investment imbalances approach to forecast currency values? A. Six-month in Country A. B. One-year in Country A. C. One-year in Country B. |