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A U.S. Based company has a short-term cash balance of USD 10 million. The company intends to invest in government securities for 120 days. The current spot rate and futures exchange rate (December 2017 futures) of USD against GBP are 1.6971 and 1.6950 respectively. The U.S. treasury bill rate is 15 percent per annum. The British 120- day gilt rate is 5.60 percent per annum. Compute the implied rate, and advise the company on its short-term investment strategy.

A U.S. Based company has a short-term cash balance of USD 10 million. The company intends to invest in government securities for 120 days. The current spot rate and futures exchange rate (December 2017 futures) of USD against GBP are 1.6971 and 1.6950 respectively. The U.S. treasury bill rate is 15 percent per annum. The British 120- day gilt rate is 5.60 percent per annum. Compute the implied rate, and advise the company on its short-term investment strategy.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A U.S. Based company has a short-term cash balance of USD 10 million. The company intends to invest in government securities for 120 days. The current spot rate and futures exchange rate (December 2017 futures) of USD against GBP are 1.6971 and 1.6950 respectively. The U.S. treasury bill rate is 15 percent per annum. The British 120- day gilt rate is 5.60 percent per annum. Compute the implied rate, and advise the company on its short-term investment strategy.
Transcribed Image Text:A U.S. Based company has a short-term cash balance of USD 10 million. The company intends to invest in government securities for 120 days. The current spot rate and futures exchange rate (December 2017 futures) of USD against GBP are 1.6971 and 1.6950 respectively. The U.S. treasury bill rate is 15 percent per annum. The British 120- day gilt rate is 5.60 percent per annum. Compute the implied rate, and advise the company on its short-term investment strategy.
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