Friday

December 19, 2014

December 19, 2014

Posted by **RICKY** on Thursday, August 5, 2010 at 7:45pm.

A).The treasurer of a German firm has €5 million to invest for three months. The annual interest rate in the Germany is 4 percent: the interest rate in the United Kingdom is 2 percent. The spot rate of exchange is €1.1/£ and the three-month forward rate is €1.2/£. Ignoring transactions costs, in which country would the treasurer want to invest the company’s capital using the forward market? Explain your answer.

B)Suppose the spot rate of exchange between Germany and the UK at time t is $1.50/£. If the interest rate in the US is 13 percent and it is 8 percent in the UK, what would you expect the one-year forward rate to be if no immediate arbitrage opportunities exist?

**Answer this Question**

**Related Questions**

Finance - A bank offers your firm a revolving credit arrangement for up to $85 ...

eco - Suppose a person pays $80 of annual interest on a loan that has a 5 ...

Finance 200 - The treasurer for Thornton Pipe and Steel Company wishes to use ...

bookkeeping - what is the july interest ?total purchase is $15,632.16 with a %10...

Finance - Find the future value of $10,000 invested now after five years if the ...

Math - An investor must invest a total of $15,000 in two accounts, one paying 4...

finance - 14. Assume Julian has a choice between two deposit accounts. Account A...

finance - A machine cost $ 4,000. It lasts 2 years and has no scrap value (that ...

Finance - An investment pays 9 percent interest compounded semi-annually. What ...

Math - Rosa invested $8000 for one year, part ast 8% annual interest and the ...