Suppose theannualizeddeposit and borrowing interest rates in U.K.are 5.30% and 5.44%, respectively. At the same time, the annualized deposit and borrowing interest rates in U.A.E. are 8.12% and 8.37% respectively.

Spot and six-month forward quotes are AED 5.45/ - 5.55/ and AED 5.85/ - 5.95/, respectively.

Ibrahim, a U.A.E. investor, is thinking of borrowing AED 100,000 in U.A.E and investing it in the United Kingdom. His friend Khalid is advising him not to go ahead with this as U.K. interest rates are lower than U.A.E. interest rates. According to Khalid, Ibrahim should borrow in U.K. and invest in U.A.E.

What is your advice to Ibrahim? Can he make a profit if he borrows in U.A.E. and invests in United Kingdom? Explain your answer.

Is there anything wrong with Khalid's advice? Explain

please explain

Answer rating: 100% (QA)

To determine whether Ibrahim can make a profit by borrowing in UAE and investing in the United Kingdom we need to consider the interest rate different... View the full answer