art a

Artist Choice Ltd. has $6 million in cash available for 30 days. It can earn 4% on a 30day investment in the U.S. Alternatively, if it converts the dollars to Nicaraguan Crdoba, it can earn 5% on a Nicaraguan deposit. The spot rate of the Nicaraguan Crdoba is $.028. The spot rate 30 days from now is expected to be $.026. Should Artist Choice invest its cash in the U.S. or in Nicaraguan? Substantiate your answer. (7 marks)

Part b

Champion Music Inc. has $10 million in excess cash that it has invested in Barbados at an annual interest rate of 40 percent. The U.S. interest rate is 5 percent. By how much would the Bajan dollar have to depreciate to cause such a strategy to backfire? (3 marks)