Question 1

You are the fund manager of ABC Fund, based in New York. You noticed that the Egyptian T-Bills are offering one of the most competitive interest rates worldwide, and you perceived it as a lucrative investment opportunity. On 1^st Jan 2019, your fund decided to invest in the Egyptian treasury bills that pays 16% annually and for this you transferred USD 1 million to Egypt. Money was converted in a bank which quoted a USD/EGP rate of 16.70/ 16.80.

On 31^st Dec 2019, T-Bills matured and interest was recognized. USD/EGP on 31^st Dec 2019 quotation was 19.10/19.20

1. Calculate in US$ terms the net profit / loss ABC Fund made on its investment in Egypt. (show all steps)
2. If the prevailing market interest rate on USD deposits at time of investment (1/1/2019) was 3.25%, would it have been better for ABC Fund to keep its funds as a USD deposit? Explain