International Financial Management 2nd Edition by Geert Bekaert ,Robert Hodrick

Exercise 10

Suppose the euro borrowing and lending rates for a German parent and its Spanish affiliate for a 90-day period are as follows:
In each of the following cases, determine the direction funds should flow and the return to the MNC of transferring EUR1,000,000:
a. The German parent has positive funds; the Spanish affiliate has negative funds.
b. The German parent has negative funds; the Spanish affiliate has positive funds.
c. The German parent has positive funds; the Spanish affiliate has positive funds.
d. The German parent has negative funds; the Spanish affiliate has negative funds.