The treasurer of a major U.S.firm has $12 million to invest for three months.The interest rate in the U.S.is 0.42 percent per month.The interest rate in the UK is 0.52 percent per month.The spot exchange rate is £0.70,and the three-month forward rate is £0.71.Ignoring transaction costs,in which country would the treasurer want to invest the company's funds? Why?

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Quizplus · Accepted Answer

Earnings in U.S. $ from U.S. investment: [$12m (1.0042)³] - $12m = $151,835.93; Earnings in U.S. $ from UK investment: [$12m (£0.70/$1)(1.0052)³ ($1/£0.71)] - $12m = $16,510.69; Difference in earnings = $135,325.24

The Treasurer of a Major U