While you were visiting London, you purchased a Jaguar for 35,000, payable in three months. You have

Question:

While you were visiting London, you purchased a Jaguar for £35,000, payable in three months. You have enough cash at your bank in New York City, which pays 0.35 percent interest per month, monthly, to pay for the car. Currently, the spot is $1.45/£ and the three-month forward is $1.40/£. In London, the money market interest rate is 2.0 percent for a three-month investment. There are two alternative ways of paying for your Jaguar.
a. Keep the funds at your bank in the United States and buy £35,000 forward.
b. Buy a certain pound amount spot today and invest the amount in the U.K. for three months so that the value becomes equal to £35,000. Evaluate each payment method. Which method would you prefer? Why?

Compounding
Compounding is the process in which an asset's earnings, from either capital gains or interest, are reinvested to generate additional earnings over time. This growth, calculated using exponential functions, occurs because the investment will... Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...