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When you have visited edinburg, you have plan to purchase a benz car for 40000 pounds...

When you have visited edinburg, you have plan to purchase a benz car for 40000 pounds , payable in 3 months. You have enough cash at your bank in california city, which pays 0.35% interest per month, compounding monthly, too pay for the car. Currently the spot exchange rate is $1.45 / Pound and the 3-month forward exchange rate is $1.40 / pound. In edinburg, the money market interest rate is 2% for a 3 month investment. There are two allternative ways of buying for your benz car. Option 1: keep your funds at your bank in the US and buy 40000 pounds forward Option 2: A certain pound amount spot today and invest the amount in UK for 3 months so that the maturity value becomes equal to 40000 pounds. Evaluate each payment method. which method would u prefer and why?

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jeff jeffy answered 2 years ago
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