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8 September, 23:37

The treasurer of a major U. S. firm has $40 million to invest for three months. The interest rate in the United States is. 28 percent per month. The interest rate in Great Britain is. 32 percent per month. The spot exchange rate is £.639, and the three-month forward rate is £.642. What would be the value of the investment if the money is invested in U. S and Great Britain?

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  1. 8 September, 23:44
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    Check the explanation as follows.

    Explanation:

    a) If it is invested in US

    Current = $40 million

    Interest rate = 0.28% p. m

    Interest for 1 month = $40 million*0.28% = $0.112 million

    Interest for 3 months = $0.112*3 = $0.336 million

    Total value after 3 months = $40 million+$0.336 million = $40336000.

    b) If it is invested in Great Britain.

    Convert $40 million into Pounds = $40 million*0.639 = Pound 25.56 million

    Ivest in Great Britain for 3 months @ 0.32%

    Interest per month = 25.56 million*0.32% * 3 = 0.245376

    Total Pounds after 3 months = Pound 25.805376

    Convert into $ = 25.805376/0.642 = $40195289.7156

    Value if invested in great britain = $40195289.7156
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