1. Assume the annual interest rate on a British pound denominated asset maturing in 30 days is 5 percent. The annual interest rate on a dollar-denominated asset maturing in 30 days is 8 percent. (30 days is approximately one-twelfth of a year!)  Kiko Company, a U.S. firm, wants to spend $1,200,000 to buy the pound-denominated asset or the dollar-denominated asset.  The spot exchange rate is $1.377 per pound and the 30-day forward exchange rate is $1.38 per pound.  The U.K. has a 12 percent tax rate on all earnings.  The U.S. has a 15 percent tax rate on all earnings.  The U.K. and the U.S. has a bilateral agreement to prevent double taxation.  Under this agreement,  each country will apply its full tax rate only on earnings from the foreign country that have not been taxed by that foreign country. For earnings from the foreign country that have already been taxed, each country will tax using the rate by which its tax rate exceeds the foreign country’s tax rate. 

Which asset would Kiko Company prefer?  Show your work clearly and briefly explain each step.

Answer rating: 100% (QA)

Ans When it comes time to sell your home you want to sell it for the highest price while controlling ... View the full answer