Problem 20-7 Interest Rates and Arbitrage
The treasurer of a major U.S. firm has $22 million to invest for
three months. The interest rate in the United States is .22 percent
per month. The interest rate in Great Britain is .27 percent per
month. The spot exchange rate is £.622, and the three-month forward
rate is £.624. Ignore transaction costs.
What would be the value of the investment in three months if the
money is invested in the U.S. or Great Britain? (Enter your
answers in dollars, not in millions of dollars. Do not round
intermediate calculations and round your answers to 2 decimal
places, e.g., 1,234,567.89.)
U.S. | $ |
Great Britain | $ |
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