Suppose a U.S. parent owes $5 million to its English affiliate. The timing of this payment can be changed by up to 90 days in either direction. Assume the following effective annualized after tax dollar borrowing and lending rates in England and the U.S.

a. If the U.S. parent is borrowing funds while the English affiliate has excess funds, should the parent speed up or slow down its payment to England?

b. What is the net effect of the optimal payment activities in terms of changing the units’ borrowing costs and/or interest income?

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United States England Lending (%) 4.0 3.6 Borrowing (%) 3.2 3.0