1 Determine the investment portfolio composition for Kent’s northern branch that would maximize the expected effective yield while satisfying the restriction imposed by the parent.

Kent plc is a large UK firm with no international business. It has two branches within the UK, a southern branch and a northern branch. Each branch currently makes investing or financing decisions independently, as if it were a separate entity. The northern branch has excess cash of £15 million to invest for the next year. It can invest its funds in Treasury bills denominated in pounds or in any of four foreign currencies.
The only restriction enforced by the parent is that a maximum of £5 million can be invested or financed in any foreign currency.
The southern branch needs to borrow £15 million over one year to support its UK operations. It can borrow funds in any of these same currencies (although any foreign funds borrowed would need to be converted to pounds to finance the UK operations). The only restriction enforced by the parent is that a maximum equivalent of £5 million can be borrowed in any single currency. A large bank serving the international money market has offered Kent plc the following terms:

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Currency Annual interest rate on deposits Annual interest rate charged on loans British pound 6% 9% Australian dollar 11 14 Canadian dollar 7 10 New Zealand dollar 9 12 Japanese yen 8 11 The parent of Kent plc has created one-year forecasts of each currency for the branches to use in making their investing or financing decisions: Currency Today's spot exchange rate Forecasted annual percentage change in exchange rate 14 Australian dollar 11 Canadian 7 10 dollar New Zealand 9 12 dollar Japanese yen 8 11