The treasurer of a major U.S. firm has $25 million to invest for three months. T

Question

The treasurer of a major U.S. firm has $25 million to invest for three months. The interest rate in the United States is .25 percent per month. The interest rate in Great Britain is .30 percent per month. The spot exchange rate is £.625, and the three-month forward rate is £.628 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.) U.S Great Britain

Explanation / Answer

If invested in US, the fund value after 3 months (assuming reinvestment) : 25 * (1+0.25%)3 = 25,187,969.14 . (note that without reinvestment assumption, the value will be 25,187,500.00)

If invested in UK, then:

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