Assume the annual interest rate on a British pound-denominated asset maturing in 90 days is 7.5 percent. The annual interest rate on a dollar-denominated asset maturing in 90 days is 4.2 percent. ( 90 days is approximately one-quarter of a year!) Engo Company, a U.S. firm, wants to spend $12,000,000 to buy the pound-denominated asset or the dollar-denominated asset. The spot exchange rate is $1.24 per pound and the 90-day forward exchange rate is $1.235 per pound. Which asset would Engo Company prefer?

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