4. 7.

Interest rates and arbitrage [LO 21.2] The treasurer of a major Australian firm has $30 million to invest for three months. The interest rate in Australia is 0.28 per cent per month. The interest rate in Great Britain is 0.31per cent per month. The spot exchange rate is £0.791, and the three-month forward rate is £0.803. Ignoring transaction costs, in which country would the treasurer want to invest the company’s funds? Why?