Imaginevisitingoverseas,where you winthe local lottery and can buy anyforeigncar you wishandwillpay fullretailprice using the local currency, payable in three months. Youhave determined that youhave enough cash at your bank in New York City, which pays 0.35 percent interest per month, compounding monthly, to pay for the car. There are two ways to pay for yourcar:

• Keep the funds at your bank in the United States and buyaforwardcontract to pay for the car.
• Buy a certaincurrencyamount spot today and invest the amount in theforeign bankfor three months so that the maturity value becomes equal tothe price of the car.

Using U.S. Dollars to Euro conversion. Car cost 781,00 in Euros and $915,503.50 in USD. Conversion rate is 1 USD is equal to 0.8516 Euros. 1 Euro is equal to 1.1736 USD.

Compute the cost of the car in dollars:

1. How much would the car cost if you purchased it today?
2. Use an FX calculator or calculate the dollar value that you would need in 3 months with the forward rate. ( foreign currency/3 mos forward rate)
3. Next, calculate the Present Value of the figure that you calculated in the above step taking into consideration the US bank rate (figure above/US bank rate to the third power)

2) Now compare the cost you computed above with the cost of paying for the car today by looking at the present value of the cost of the car in foreign currency

1. a) Foreign Currency /(3 months foreign money market rate)
2. b) Present value figure from step "a" x (spot rate)