Question
Problem 2: Suppose that you are an investor having 100 000$ choosing between investing either in London or in New York. The interest rate on
Problem 2:
Suppose that you are an investor having 100 000$ choosing between investing either in London or in New York.
The interest rate on British pounds is 12% in London, and the interest rate on a comparable U.S. dollar investment in New York is 7%. The British pound spot rate is $1.95, and the one-year forward rate is $1.87.
- What would the one year gain if you decide to place the 100 000 usd in a bank in New York with 7% interest rate?
- What would the one year gain if you decide to place the 100 000 usd in London with a 12% interest rate taking into account The British pound spot rate is $1.95, and the one-year forward rate is $1.87.?
- Taking into account the uncovered interest rate Arbitrage which investment would you choose to do?
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Governing The Modern Corporation Capital Markets Corporate Control And Economic Performance
Authors: Roy C. Smith, Ingo Walter
1st Edition
0195171675,0199924015
