The treasurer of a major U.S. firm has $31 million to invest for three months. T
ID: 2651064 • Letter: T
Question
The treasurer of a major U.S. firm has $31 million to invest for three months. The interest rate in the United States is .48 percent per month. The interest rate in Great Britain is .52 percent per month. The spot exchange rate is .69, and the three-month forward rate is .70. Ignore transactions costs. (Enter your answer as directed, but do not round intermediate calculations.) Requirement 1: (a) If the treasurer invested the company's funds in the U.S., how much would the investment be worth after three months? (Enter your answer in dollars, not millions of dollars (e.g., 1,234,567). Round your answer to 2 decimal places (e.g., 32.16).) Amount $ (b) If the treasurer invested the company's funds in Great Britain, how much would the investment be worth after three months in U.S. dollars? (Enter your answer in dollars, not millions of dollars (e.g., 1,234,567). Round your answer to 2 decimal places (e.g., 32.16).) Amount $Explanation / Answer
a. If invested in US, Investment worth after 3 months = 31,000,000 x (1.0048)3 = $31,448,546.15
b. Amount to be converted in GBP = 31,000,000 x 0.69 = £21,390,000
£ worth after 3 months = 21,390,000 x (1.0052)3 = £21,725,422.16
Value of $ after converting £ in $ = 21,725,422.16 / 0.70 = $31,036,317.38
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.