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The treasurer of a major U.S. firm has $32 million to invest for three months. The interest rate in the United States is .20 percent per month. The interest rate in Great Britain is .26 percent per month. The spot exchange rate is £.631, and the three-month forward rate is £.633. What would be the value of the investment if the money is invested in the U.S and Great Britain? (Enter your answers in dollars, not in millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)

Respuesta :

Answer:

$32,192,384.25 ; $32,148,352.96

Explanation:

If invested in US ,

Value of Investment in $:

[tex]=PV\times(1+r)^{n}[/tex]

[tex]=32,000,000\times(1+0.002)^{3}[/tex]

      = $32,192,384.25

If invested in Great Britain ,

Amount to be invested in Great Britain:

= Present value × spot exchange rate

= $32,000,000 × 0.631

= $20,192,000

Value of Investment in Great Britain:

[tex]=PV\times(1+r)^{n}[/tex]

[tex]=20,192,000\times(1+0.0026)^{3}[/tex]

= $20,349,907.43

Value of Investment in $ when invested in Great Britain:

= Value of Investment in Great Britain ÷ Three-month forward rate

= $20,349,9707.43 ÷ 0.633

= $32,148,352.96

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