AMK Ltd. An India based company has subsidiaries in U.S. and U.K.

Forecasts of surplus funds for the next 30 days from two subsidiaries are as below:

U.S. S12.5 million

U.K. 6 million

Following exchange rate information are obtained:

S/Rs. /Rs.

Spot 0.0215 0.0149

30 days forward 0.0217 0.0150

Annual borrowing/deposit rates (simple) are available.

Rs. 6.4%/6.2%

S 1.696/1.5%

3.9%/3.7%

The Indian operation is forecasting a cash deficit of Rs.500 million. It is assumed that interest rates are based on a year of 360 days.

(I) Calculate the cash balance at the end of 30 days period in Rs. for each company under each of the following scenarios ignoring transaction costs and taxes:

(a) Each company invest/finances its own cash balances/deficits in local currency

independently.

(b) Cash balances are pooled immediately in India and the net balances are

invested/borrowed for the 30 days period.

(II) Which method do you think is preferable from the parent company's point of view?