The SHP CEO has established his office in New York and acquired a Jaguar for 35,000 using
Question:
The SHP CEO has established his office in New York and acquired a Jaguar for 35,000 using a three-month payment plan. He possesses adequate funds in his New York City bank account, where the monthly interest rate is 0.35% compounded monthly, to cover the car's cost. Presently, the spot exchange rate stands at $1.45/, while the three-month forward exchange rate is $1.40/. In London, the money market interest rate for a three-month investment is 2.0%. The two payment options are available for buying the Jaguar,
a. Purchase a 35,000 forward with the funds kept in the US bank.
b. Purchase a certain number of pounds at the current spot rate and invest the amount in the UK for three months until its maturity value reaches 35,000.
You are required to evaluate each payment method and suggest your preferred method with workings.
Smith and Roberson Business Law
ISBN: 978-0538473637
15th Edition
Authors: Richard A. Mann, Barry S. Roberts