In this week's project task, identify derivatives investments, foreign exchange investments, bank investments, or a combination of them for the firm's excess cash. Make a recommendation to your boss...

To: Mr. Boss
From: Paddy D’souza
Date: January 1, 2103
Subject: Deployment of Excess Cash with Firm
It was observed from last 8 to 10 months that the firm was holding excess cash fund of $400
million on average basis. The holding of excess fund didn’t result any benefits to company. This
excess liquidity is expected for further 6-8 month.
As asked, I have studied, consulted with experts and compared various available avenues where
the firm’s excess cash can be deployed. The excess fund can be invested 50% in Bank
instruments, 30% each in forex instruments and 25% in derivative instrument. The allocation
would provide diversification, and good returns with average associated risk.
Forex Exchange Instruments
The forex exchange or currency trade instruments include forward, swap, options and future on
several currencies. There are also EURO bonds, foreign currency bonds, ADR which may
provide high returns. Forex is the largest and most liquid market in the world. Over the counter
market composed significant part of this. I, along with over currency management department,
evaluated three major identified avenues i.e. EURO/USD, CHF/USD and GBP/USD segments.
The brief description of each avenue is as follows:
Currency pair Current Ex Rate 6-month forward/swap
rate
Our estimates
EURO/USD 1.32 1.38 1.35
CHF/USD 0.95 0.98 0.98
GBP/USD 1.70 1.72 1.75
We can enter into buy-sell currency swap for EURO/USD (i.e. purchasing EURO 1.32 in spot...