A London-based investor has surplus cash of US $ 1,000,000 to invest in a three-month money market account. The three-month deposit rates are 7.2% per annum in sterling and 4% per annum in US dollars. The current spot exchange rate is $/₤ 1.5000 – 1.5020. The three-month forward offer price for US dollar quoted to the investor is 1.4930.

Required
Show how he can make a risk-free gain

Answer rating: 100% (QA)

To identify the opportunity for a riskfree gain well calculate the returns for the Londonbased inves... View the full answer