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. a. 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? b.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.? c.Taking into account the uncovered interest rate Arbitrage which investment would you choose to do?

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. a. 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? b.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.? c.Taking into account the uncovered interest rate Arbitrage which investment would you choose to do?

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter8: Relationships Among Inflation, Interest Rates, And Exchange Rates

Section: Chapter Questions

Problem 46QA

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